How to be comfortable with uncertainty

Uncertainty can be a big inhibitor when it comes to many aspects of your day-to-day life. From the mundane of what the weather will be like next week, to more important issues around your health and your job.

Equally, when it comes to planning your future, financial uncertainty can always seem to pose apparent problems. This can include high-profile issues around market uncertainty, high inflation, and borrowing costs, as well as your own individual circumstances.

Financial uncertainty can create a situation where you’re unsure about future financial outcomes. As a result, this could easily affect your decision-making process. 

When it comes to your future financial security, and meeting your obligations, it can also cause deep anxiety and stress.

In reality, because of just how difficult it is to both control and predict external events that can bring about financial uncertainty, one of the keys to successful financial management is actually being able to get into the mindset of appreciating that it’s inevitable, to the extent that you’re comfortable with it. 

Uncertainty makes forecasting problematic

In a previous article, you may have read that economic and stock market forecasting can often be completely futile. 

The article included the famous observation from the economist, John Kenneth Galbraith, that “the only function of economic forecasting is to make astrology look respectable”.

To reinforce his point, Galbraith was also of the opinion that “there are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know”.

In reality, it’s incredibly difficult to predict anything that can be strongly influenced by random factors. 

For example, just consider the range of external issues that can have a bearing on the value of your investment funds. These can include:  

• National economic conditions 
• Wider global geo-political issues 
• Military conflict
• A worldwide pandemic. 

Because of this, it’s logical to assume that an amount of uncertainty is inevitable and is something you have to be comfortable with and plan for. 

Don’t be afraid to admit you don’t know

I’m a great believer in being able to say “I don’t know” if a question or issue arises to which I don’t have an answer. 

Of course, if there’s an answer to be found, I’ll prioritise finding out, but I also accept that sometimes no one will know the answer. This is particularly the case with forecasting and financial predictions. 

When it comes to helping you plan your financial future, I aim to help you accept a level of uncertainty. Doing so can actually give you a better chance of a successful outcome than railing against it and trying to constantly second-guess yourself. 

That’s why you should account for a certain level of not knowing and uncertainty in your financial plan. 

Taking on risk can often be important to improving your chances of returns

Growing your wealth, whether you’re investing in stock markets, buying a bigger property, or changing jobs, involves a certain degree of risk and uncertainty. 

But in all of those three scenarios, the risk is perfectly justifiable, especially when you measure it against the risk of not doing anything.

In fact, it may sound contradictory, but in certain scenarios not taking enough risk because of the level of uncertainty it entails is actually a bigger risk than taking none at all. 

If you don’t buy a bigger house, you may end up with not enough room to live comfortably. If you turn down a move to a more lucrative but demanding job, you might have to cut your costs and not enjoy such a comfortable lifestyle. And, if you don’t invest, you probably won’t have enough savings to enjoy the retirement you’ve looked forward to. 

Helping you manage uncertainty

The biggest key to managing your uncertainty is to ensure your financial plans are robust enough to get you through any eventualities.

This can include:

• Creating a thorough financial strategy so you have a clear idea of your goals 
• Setting aside a sufficient emergency fund
• Planning an effective retirement income strategy for up to three years ahead
• Maintaining accurate financial records
• Ensuring your investments are well diversified. 

As part of your plan, one step I’ll often recommend that can also help reduce your uncertainty, is to overestimate potential negative factors and underestimate those that can have a positive effect.

It’s important to accept that you cannot create a financial plan derived from certainty because there are too many random factors that could, and probably will, affect it.

Ultimately, the route to financial success is to embrace uncertainty as this will lead to a better outcome for you.

Get in touch

If you’d like to talk through any of the issues you’ve read about here, then please get in touch.

You can call me on 07769 156 250.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.