Does Your Financial Planning Account for the Worst-Case Scenario?

Harold Evensky financial planning
Harold Evensky September 8, 2022

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What happens when your financial planning backfires or doesn’t account for the worst-case scenario?

Harold Evensky is a Certified Financial Planner ® who has some evergreen advice for investors. Harold meets with many investors who share the trait of being overconfident in their financial decisions. He explains how a financial planner, like himself, can help them see the big picture.

Today’s guest is Harold Evensky, a Certified Financial Planner ®. He explains how he helps clients prepare for the unplanned for circumstances. He uses a technique called “framing” to help investors look at the big picture and really understand what risk means. Often an investor’s overconfidence will cause them to ignore some very real possibilities.

Be warned: certainty and safety are the not the same thing in financial planning!

How to be prepared for a job loss

Do you work in an unstable work environment?

An unstable work environment could be a startup or high-tech company or someone who works on commissions. Doug has tips for someone who may not have a steady source of income. While saving all you can is great advice, it may be worthwhile to create alternate sources of income like Real Estate Investment Trusts (REITs.) Download a list of tips on How to Manage Your Investments When Your Main Income Source Could Collapse at Any Moment.

Free Download: How to Manage Your Investments When Your Main Income Source Could Collapse at Any Moment

Learn more about Harold Evensky at, or read his book, Hello Harold: A Veteran Financial Advisor Shares Stories to Help Make You Be a Better Investor. He’s offering free copies to the first 20 Goldstein on Gelt listeners who contact us through the Goldstein on Gelt website. Please include your name and address with your message.

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Read the Transcript

Interview with Harold Evensky

Overconfidence is a big problem with a lot of investors, and one way of dealing with that is via framing. Harold Evensky, CFP®, expounds.

Douglas Goldstein: I am very excited to have on The Goldstein on Gelt Show Harold Evensky, who, like me, is a Certified Financial Planner. He’s been involved in it a little bit longer than I have.

The Problem of Overconfidence

Douglas Goldstein: I have to tell you, since I started out in the business about 25 years ago, your name has been popping up as someone that a lot of financial planners really look to for advice. But not just the financial planners who are listening to the show.

A lot of investors who listen often listen to the good advice we give, but unfortunately, they seem to just make bad decisions. I often attribute it to what we call “behavioral finance,” or some other psychological problem.

Why do you suppose that is? Why do suppose that people who, when they know the right thing to do, just end up doing the wrong thing?

Harold Evensky: Yes, you put your finger on it. The answer is because we’re all human. Economists like to talk about the intelligent investor. But the fact of the matter is, we make mistakes because we’re human.

Overconfidence. When I do a big lecture, how many people in the audience think, at least just by a fraction, that they’re a better driver than the average person? Everyone puts up their hand. Your kids, everyone thinks, your kids are above average. That’s just the way our brains work.

Douglas Goldstein: But how does that cause people to mess up?

Harold Evensky: Easy. We have great overconfidence in ourselves, in terms of being able to pick the best stock or fund, and in our ability to pick the best manager or the best mutual fund.

We think we can beat the system when no one else can. There’s just lots of various ways in which we make mistakes. So a big part of our practice is utilizing what’s called “framing” to help people step back and maybe look at reality a little more realistically.

What Is Framing?

Douglas Goldstein: That’s an issue. My day job is as a financial advisor. Sometimes when I am talking to clients, I’ll try to present a financial concept to them, but I don’t use statistics and numbers and percentages because it confuses them.

A lot of times, when we’re talking about risk, it doesn’t help someone to talk about standard deviation, but it does help them if you say, “Listen, if you have $100,000 this month, and next month it’s $70,000, what would you do?” Is that what you mean by framing?

Harold Evensky: That’s exactly it. Another example is when someone comes in with a hot tip from their neighbor. Everyone comes along, and they want to take a big chunk of their money and invest.

We’ll say, “Wow, let’s talk about it. If it works, you’ll do great. You can take a couple of extra risks here. Of course, if it doesn’t work, you’re going to have to work three more years.” That’s framing.

One of the things to ask if you have a hot tip, all people think about is, “How’s it going to work when it goes right?” They need to stop and say, “Well, what happens if it goes wrong?” and frame it for themselves.

Douglas Goldstein: It’s actually funny that you say that because I find I am an optimist, generally, and maybe this is my personality. But it makes it difficult for a lot of people to think about the bad happening. Are we, as advisors, forcing them to think about bad things they don’t really want to think about?

Harold Evensky: I am not sure it’s forcing them. I would say we’re helping them think, “What are the consequences?” There’s not 100% probability that all the good things will happen. It’s important to think about and plan for the consequences if it doesn’t happen.

Douglas Goldstein: What do you suppose a lot of people think when they go to a financial advisor like you or me? They say, “Oh, he really knows what he’s doing. Can he tell me how to invest?” When they say that, they’re thinking something very different from what you’re thinking.

You Can’t Beat the System

Harold Evensky: Yes, you’re right. What’s the best stock to buy? Should I get out today, and in tomorrow? That’s not what financial planners are all about.

We basically believe investing should be boring. Risk is as important as return. We live in a three-dimensional world, but expenses and taxes are third dimension.

You’re not going to beat the system. The question is, how can you do reasonably well within the system and achieve your goals, and in ways that you can live with?

How Should People Make Financial Decisions?

Douglas Goldstein: Harold, let’s dive in a little bit further to how people make decisions in a world of uncertainty and emotions. We know it’s true, as you mentioned before, the problem of being overconfident. There are many other problems that people have.

If we identify these problems, that doesn’t necessarily mean people aren’t going to make the same mistakes.

What can a serious person do? He says, “I want to have a successful financial future and not let my emotions get the best of that.”

Harold Evensky: That’s a great question, and the answer is structure. The key to developing and implementing managing a portfolio is to develop what’s called “an investment policy statement.” It is really a simple roadmap that says, “Okay, I am going to put this much in bonds and this much in stocks. Then these kinds of bonds and stocks in these percentages, and then maintain it.”

The second part of that is what’s called “rebalanced parameters.” Let’s say I am going to put half my money in bonds and half in stocks. All that’s fine, but down the road, those percentages are going to change even if you don’t touch it—the market’s going to go up or down.

The other part is saying, “If it gets out of whack by more than, say, 10%, I am going to bring it back in line again.” A real simple process, and what it means is, over time, investors will be doing what they say they want to do, which is selling high and buying low.

The problem is, it doesn’t feel good because what it means is you’re going to be selling what’s doing well and buying what’s doing poorly. Markets go down, there’s a big crash, and you get calls from clients saying, “Are we getting out of the market now?” Our job is to say, “No, don’t you remember? We’re going to be buying now. It’s a good opportunity.”

It’s painful, but the key is having that policy in place so that you don’t let your emotions control you. You kind of hold your breath, and you hold your nose and you say, “Okay, I am still with it.”

Now, that assumes over time domestic and world economy will go up and stocks will do more than bonds. That’s not guaranteed, but if Armageddon comes, all bets are off anyway.

Douglas Goldstein: I don’t know if it’s Armageddon only. I think that a lot of the mistakes that people make, when they listen only to the advice you just said, is they go, “Okay, I can only do asset allocation. I don’t want to pick individual stocks or individual bonds.” Or, “I’ll buy some stock funds. I want to buy some bond funds.”

Then, they shop around for the bond funds that, say, have the highest dividend yield. All of a sudden, they end up with a portfolio filled with what are nicely called “high-yield bond funds,” but are really just known as “junk bonds,” colloquially.

Or, they’ll buy long-term bond funds, and they don’t even realize that the bond side of their portfolio has possibly just as much risk as the stock side. There’s a lot of risk in just not understanding how to implement it.

Consider Risk and Return When Investing

Harold Evensky: Absolutely. The policy is the first step, and the next is picking the investments that go in that policy. I couldn’t agree with you more that a lot of the mistakes people make are buying stories and not buying fundamentally sound investments. Not understanding it’s not just the return you get, it’s the risk you’re taking. You need to evaluate those two in tandem.

So it’s not that the high-yield may not be appropriate for a little piece of a portfolio, but it’s certainly not an appropriate fixed income or bond investment. It’s more of a stock investment.

Douglas Goldstein: So people who, in the past few decades, might have been following this plan, having an asset allocation model and less risk, now they’ve hit retirement and they say, “Okay, now I want to lower my exposure to the stock market and start living on the fixed income side of it.” Then they discover that rates are so low. What’s a good solution for people in that situation?

Harold Evensky: To recognize that they shouldn’t confuse certainty and safety. Fixed income, bonds, CDs, they’re certain. You know that you’ll get the payment, assuming it’s the high quality that you’re promised. But I would go on to say, it’s certainly not going to be very safe.

Inflation is a reality, so what they need to focus on is what we call “total return.” What do I think over time my investments are going to earn from dividends and from interest and capital gains? Don’t focus on those pieces, but focus on how they all fit together.

Douglas Goldstein: I think that’s very good advice, Harold. In the last few seconds, tell me how can people follow you and follow your work?

How to Follow Harold Evensky

Harold Evensky: They can go onto our website, which is Every couple of months I do what I call a newsletter to add little tidbits of fun and interesting things, and we archive them on there. They can sign up and get it from us electronically.

Also, read all about our company philosophy, and the background of everyone who works in the firm.

Douglas Goldstein: Okay, we’ll put links to all of that on today’s show at

Harold Evensky: Thank you for including me. I really enjoyed it. You have a great day.

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