A friend recently sent me an interesting article entitled How Happiness Comes With Age - Becoming Okay With Being Boring. I’m guessing I liked the title so much because I am a CPA and have mastered the art of being boring. If you ever need someone to liven up a party, just give me a call and I will give you the phone number for my friend Ron - he is really fun.
One particular part of this article jumped out at me as it relates to investing. The writer was discussing our gradual shift as we age from adventure seekers to safety seekers:
“Social psychologists describe this change as a consequence of a gradual shifting from promotion motivation -- seeing our goals in terms of what we can gain, or how we can end up better off, to prevention motivation -- seeing our goals in terms of avoiding loss and keeping things running smoothly. Everyone, of course, has both motivations. But the relative amounts of each differ from person to person, and can shift with experience as we age.”
Gain Seeking vs. Loss Avoiding
What I love about this visual is that it points out something that is critically important to acknowledge in managing your financial life: we all have this internal tug of war going on between our adventure seeking, gain seeking side and our safety seeking, loss avoiding sides. I guess you could say we all have a wild side and a mild side.
Most often, the deciding factor in who wins this epic battle between our wild side and our mild side is the stock market’s recent performance. When the market is going up, our adventurous, gain seeking, wild side takes the wheel. All we want to know is - how can we make more?! When the market is going down, our cautious, loss avoiding, mild side grabs the wheel. All we want to know is - how can we stop the bleeding?!
Having someone grab the wheel can have devastating consequences whether you are driving a car or investing your portfolio. That is why it is critically important to your long-term financial health that you invest in a portfolio that satisfies both sides of you - your gain seeking, wild side and your loss-avoiding, mild side. In other words, the key is to design a portfolio that you (and the other you) will be happy with if the market goes up or down. So, the next time you are tempted to make a dramatic change in your portfolio, ask yourself, “Is my wild side or my mild side trying to take over here and make me do something I will regret?”
I have to go now; I am going to try to offset my boringness with a little wild living. I’m thinking seriously about leaving the cap off my pen when I leave for the weekend. On second thought, maybe I will just leave the cap slightly loose.