Wealth & Psychology

Although your investment actions will play a big role in your financial plan, one aspect of wealth management that can be difficult to wrap our heads around is how we behave as an individual, will impact whether that plan is successful. Before we dive right into your portfolio, I think it would be valuable for us to go over a few traits & points that will help us on our journey.

Longer time horizons, more wealth:

96.5% of Warren Buffets wealth accumulated after he reached the age of 65. The power of compounding is something that few of us are able to fathom. Had Warren up and quit at age 65, he would be $81 billion less wealthy. We need to do our best to avoid interrupting the compounding cycle.

Getting wealthy is one thing. Staying wealthy is another!

Staying wealthy requires humility. Understanding that what you've made can be taken away faster than it was accumulated. If your new found wealth brings along a hubris that destroys many of the great saving habits you have endured over the life of your financial plan, you may find yourself in a position of wealth destruction. With that wealth destruction comes the loss of control of your time.

Less ego, more wealth Get that goalpost to stop moving:

One of the largest factors in wealth destruction is the need to "keep up with the Jones's.” No one is as impressed with your material items as you are. Throwing yourself further in debt to buy that larger engine car, or to get the bigger house, does nothing for you other than lower your saving rate.

This also applies to the little things. That "free" iPhone upgrade will likely bring your monthly bill from $80 to $115. That extra $35/mth, over 30 years, could give you an extra $64,076 (considering a hypothetical interest rate of 9%). That money could be the difference of needing to stay in a job you are not happy at or having the freedom to control your time and seek out something that will improve your quality of life.

Like risk (uncertainty), but be paranoid of ruinous risk:

Nobody likes risk. Put simply, risk is the "unknown". This uncertainty is what drives much of the day to day volatility in the markets. We need to understand and like this risk. Uncertainty can make us feel uneasy, but as long as you are invested within your risk tolerance and you follow the plan, this risk can provide us with opportunities that help us down the road. We do, however, need to understand the difference between volatility, & the complete loss of capital. Volatility can provide us with opportunity, while putting yourself in a position of ruinous risk may prevent you from taking on that healthy form of risk in the future.

You don't need a reason to save:

A down payment on a house, retirement, emergency & vacation funds are all great reasons to save, but remember that you can save just for the act of saving. This mind set will help you avoid using excess cash for trivial items, & help you use your money to get in control of your time.