A common financial situation some people get into is “furniture syndrome”.
Essentially, it means they have started furnishing their house without having in mind how they want the house to look like. As a result, they end up getting furniture which may not fit or deviate drastically from their eventual dream home.
In financial planning, it is not uncommon for people to have multiple assets, such as endowment plans, RSP with bank, Unit Trust etc.
There is no problem with having multiple investments or products if one knows exactly how it is going to contribute to their goals. In fact, that’s financial planning done right. However, people with the “furniture syndrome” often lack a financial blueprint. They are unsure of their own long term goals, let alone owning the right furniture.
What are some examples of financial furniture misfits?
Time-Frame Mismatch
A person may have an endowment plan which matures later than their intended retirement age. For instance, their goal is to retire at 55, but money will only come in at 60.
Product Benefit Mismatch
A person may have gotten a property for retirement income. Only to realise he don’t want to actively manage the house and tenants during his retirement years.
Returns-Expectation Mismatch
A person may have gotten an investment only to realise that the product isn’t going to bring them to their goals. For instance, I’ve seen people investing their CPF-SA money so they can make a higher return. But the underlying investment is 100% Bond. The expected returns from the bond fund is non-guaranteed and lower than CPF-SA guaranteed return. Which don't make sense.
Or, a person may need 6% p.a to achieve their retirement goals but their portfolio is only delivering 3% p.a.
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Over here, just to draw the line with impatience & increasing risk-return appetite. One may feel that his endowment plan is not making as good a return compared to his other investment because his expectation rose. That is normal. The difference is, this person is still able to achieve his goals despite having a lower portfolio return while the other person is totally unable.
Why do some fall into this situation?
It could be because they have not given a thought to their long term goals, such as, when to retire, the lifestyle they’d like to live. As a result, decisions are not made with the end in mind.
It could also be because they were presented a fanciful idea. Matter of fact is, at the point of purchase, that’s probably the best idea they have heard. It’s only some years down when they do a full financial planning to realise the misfit.
Last but not least, it could also be because of poor recommendations. Take for instance, I’ve known people who have took up investment & insurance linked plan for the sole purpose of wealth accumulation, which probably isn’t the best fit. Unfortunately, we can’t blame the agent who sold them the product because they do not have a fiduciary duty.
How do one get out of this situation?
First, consolidate your assets. Everything that you have, list them down on paper or excel. Your insurance, cash, stocks, cryptocurrency, inventories and etc
Second, set goals. Think about your future, write these goals down. If you are able to, quantify them. I’d suggest doing so with the help of a qualified financial practitioner who is able to guide you through the thinking process, spot your blind spots, suggest scenarios which you may not have thought of.
Third, align your assets & action plan to these goals. Figure out how each of them is going to fit into the overall picture. If there’s any area of misfit, get a second opinion. You may consider restructuring, moving on from a bad investment or adjust your expectations.
Summary
If you’re suffering from “furniture syndrome” or you know someone who does, share this with them!
We can’t undo mistakes of the past, but we can amend our judgement and decision for the future.
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Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting.
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