“To me, success for individual investors means they’re able to tie their current assets to their future liabilities in such a way that they can do all the things they want to do in retirement and beyond. It’s not a dollar figure or an asset allocation. It’s that an investor can spend the money on the things that he or she care about 20 or 30 years from now.”
The hardest part of my job, speaking very candidly, is keeping investors from focusing on one day, month, quarter or year. There will be good ones and bad ones no matter what, in an endlessly recurring cycle of instant gratification and nerve-wracking anxiety. I’m pretty good at conveying this, but I can’t always do it. In the end, everyone agrees that it’s the long-term that matters until the short-term starts happening.
I’m personally guilty of the same inability to contextualize as you are sometimes. I may have a lot of investment knowledge but I am also human. I have emotions just like everyone else and the same two almond-shaped amygdalae in the center of my brain, firing fear and greed impulses along my neurons at every random streak of stimuli that crosses my line of sight. These so-called “fear centers” of the brain have kept us alive as a species but they act in direct opposition to our long-term best interests as investors. All of us are susceptible to this primitive aspect of our anatomical make-up except for maybe a handful of sufferers from Urbach-Wiethe disease, in which there are focal bilateral amygdala lesions that literally prevent the person from feeling any fear.
I don’t have Urbach-Wiethe disease. Neither do you. Instead, we have fear. We get nervous when something appears to be threatening us and we have difficulty separating immediate threats from long-term threats, severe dangers from minor annoyances.
This is why my firm manages money based on rules, not our feelings or our hunches or equations that sometimes work and sometimes don’t. Because what investment success looks like to me is not being happy with a portfolio every day, but being happy with the long-range outcomes that truly matter – the accomplishment of life and financial goals.
I have a brand new interview posted on Vanguard’s website today that I’m really proud of. I enjoyed speaking with them and I hope you like reading it: