Years ago I was told by a long-time client — who wanted to transfer a significant amount of capital to his daughter — that he wanted to see simple, complete, and accurate actual and projected budget, cash flow analysis, and balance sheet 'instant replays' that were reflective of her current financial condition and that would project in detail where she might hope to be at various times in her financial future under different investing scenarios; to use his words, he did not want to see "A lot of garbage;" what I later learned to mean (my words) no voluminous pages of information telling me what I already know about myself, no pie charts, no graphs, and no historical past performance investment data dumps.

Standard investment plans typically offer considerable information about form and frame but little about design and structure to give the investor an investing direction and really nothing about the motor that will drive the investor to his or her investing destination:

• They usually downplay or even ignore the more important investment issues of establishing an investment philosophy, defining the correct investment selection process, and adopting proven portfolio management disciplines.
• They are usually of little material or directional value because they are often just an "instant replay" of an investor’s financial past, merely parroting back initial questionnaire input showing the individual what he or she already knows about himself/herself. 
• They are composed of historical data and hypothetical assumptions, presented in the eye-catching wizardry of colorful pie charts, graphs, and an array of schedules are but sleight-of-hand used to generate a very generic, over-assumed, and under-planned investment plan.

Define, modify, and manage the savings and investing tasks at hand; a walk in the park, just a bump in the road, or climb Mt. Everest — investor's current and projected Budgets (Income - Expenses), Assets, Liabilities, Personal Cash Flows, Balance Sheets, and Net Worth Investment Goal Analyses over selected analysis periods using the investor's actual and projected sources and uses of funds and the advisor's actual and projected capital growth rates, interest rates, and inflation rates.

The Goal

Problem

If you were building a home for your future, what would you think of an architect who gave you your floor plan in pie chart rather than as a blueprint?

• Your Architect: "I show my designs in primitive pie chart rather than in the usual, more traditional blueprint format to create a more natural impression and to give you a better picture of what your new home may look like. Red represents brick and green is for the lawn. The gray indicates that we will be using a lot of nails. Oh yes, I almost forgot, the pie chart seems to indicate that the structure should hold."

• Your Doctor: "Here are your pie chart physical results. The pie chart indicates that we should remove all of the yellow and add a little more red when we go into surgery and open you up in a few minutes. By the way, you are in luck because the sliver of black in the pie chart seems to indicate that anesthesia will not be necessary while you are being operated on."

The integrity of investment planning software and the quality of an investment plan will be determined by numbers — their origins and quality — and not by the number of pie charts, graphs, and data dumps investment planning software can generate and not by the number of pages in an investment plan.

Most standard investment plans — presented in the eye-catching wizardry of colorful pie chart, graph, and historical investment database infested reports — offer considerable information about form and design but little about the details of the frame and the structure that will give an investor an investing direction and really nothing about the details of the motor — the specifics and the 'what ifs' of the investing decision making and action taking processes over time — that will drive the investor to his or her investing destination.

The appeal of these types of investment advising and investing styles and strategies are that neither investing judgment nor investment and portfolio management skills are required; just search historical investment databases based on past investment performance, retrieve investments based on past investment performance, sort investments based on past investment performance, pick investments based on past investment performance, view, print, and present and then hope that the investing past will be the investing future.

• For example, standard investment planning software generally limits the user to entering broad default rate assumptions, such as Taxable Investments and Nontaxable Investments and a few allow the user to enter default rate assumptions for different broad classes of investments.
  • Growth Mutual Funds @ 7% would be included in all cases for one class of investments regardless of the fact that individual/specific Growth Mutual Funds have very different combinations and rates of income and capital growth; actual and projected.
  • Each of these investments (blocks of capital) are almost always changing in their composition over time; type of investment, amount, and holding period.
  • Each of these investments (blocks of capital) are almost always changing in their income and capital growth rates of return.
    • Income @ 5% of value and increasing @ 3% annually and capital appreciation @ 10% of value for five years and Income @ 3 % of value and increasing @ 0% annually and capital appreciation @ 2% of value for years 6 through 10; rental property for example.

Other Standard/Default Investment Planning Software Problems

Standard Investment Planning Input

In most cases, most investment planning input and recommendations center around the following:

• Enter investor's investment profile; risk tolerances, income/capital growth objectives, and time horizon.
• Complete a risk tolerance questionnaire to determine acceptable investment risk; the primary basis for investment selection.
• The investments selected and the possible ranges of investment performance results are based more on the perceived risk tolerances of the investor (low, medium, high) as entered in subjective risk profile questionnaires rather than different types, weightings, and combinations of investments in different investment portfolios under different market conditions.
  • 'Based on your risk tolerances, this is what you need.'
• Investments that fit the investor's investment profile — but do not necessarily fit the investment need, or the current market conditions, or the market outlook — are selected, a pie chart is created, investments are made, the pie chart goes into the trash (where it belongs), and all parties, in most cases just wing it from there while hoping for the best.