vol. XX no. 3
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In
the 10 years I have directed Graduate Personal Financial Planning
Programs at Georgia State, we have witnessed two of the largest asset
bubbles in the history of financial markets. First, it was tech stocks;
then, it was real estate. Both were “can’t go wrong” investments while
the bubble inflated; both crashed to earth when the bubble burst.
Enmeshed
in the euphoria-gloom cycle that has dominated the last decade of
investing, I began to think about what personal financial planning can
do to save us from asset bubbles. My answer, in short, is that the
process of personal financial planning can provide us the discipline to
avoid blindly following the pack. The key is in the goal-setting
aspect. Your goals are yours alone, and they are independent of any
other person’s goals.
What has this professor learned over the
last decade of teaching graduate students? In my introductory graduate
financial planning class, I now spend more time examining goals before
getting to calculations. An economist would say that your goals should
lead to maximizing your utility; a more general statement would be that
your goals are what you consider important, or what makes you happy.
Studies of the economics of happiness broadly show that happiness is
linked to a number of factors, including family, freedom, work,
charity, and faith, all of which, and the students agree, have a
differing degree of importance for each individual.
I like to
say that goals are the “why” of investing. It sounds simple to do, but
people struggle with clarity and concreteness around purpose of
investing. They might say “I am saving for retirement,” but be unable
to articulate what retirement means, or they might even be unsure if
they want to “retire.”
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