Welcome to our blog! In this first post we discuss the key principle of our financial planning and investment philosophy, the ability to take the long view. We choose this ability because it is the single most important skill to investment success. If you think about it, it is the most important skill to achieving anything in life!
One of my favorite authors is Matthew Kelly. He writes about many topics, including happiness and life satisfaction, and has written a short book with the title “The Long View.” The book is so good that I always keep copies for my clients. Kelly describes the long view as a brand of wisdom that takes into account the effect that today’s actions will have not only in the present, but also far into the future, including your long term goals and life pursuits. This concept resonates with me because in economics, we formalize it and apply it to the study of investment decisions, and at DESMO we put it to practice for our clients.
We can all learn to take the long view. Every time we evaluate a decision “Do I need that second mountain bike?” or when something happens, “Argh, the guy just passed me and has now slowed down below the speed limit!” Let us pause to think about how it affects our progress towards long term goals, whether financial or otherwise. Putting things into the right perspective will help us make better decisions.
Patience
One reason why taking the long view is the most important skill to succeed at anything, Kelly explains, is that it contains one of life’s most precious commodities, patience. Taking the long view teaches us to be patient, and I think we can all agree that patience is something we could have more of. Life is made of relationships, and being patient helps you with relationships. Would you rather have a spouse, friend, neighbor, teacher, boss, or running buddy that is patient, or one who isn’t?
The same applies to financial planning and investing, which are long term decisions. Consider retirement, a key goal for most people. Many decisions we make today will affect our ability to retire comfortably, but we rarely think about it in making any of our daily decisions. We fail to take the long view. As a result, many people put retirement planning off and undersave for it.
And just as in relationships, patience is crucial to investment success. Most investment mistakes happen when we fail to be patient. For example, research shows that overreaction to short term news causes investors to follow a pattern of buying high and selling low, a bad recipe for investing. Taking the long view helps put performance into the right perspective. The market volatility of the last few weeks should have little impact for most investors with a 10, 20, or 30 year investment horizon. In fact, it may even benefit them.
Values, Planning, and Coaching
Taking the long view in our daily lives can be hard, as so much of what we are exposed to pushes us to make rushed decisions. Financial commentators often lead us to react to events we have very limited control over, and even ones that do not matter to our long term goals. So how can we redirect our focus? Most of us (me included) need two things. A plan based on our own values and priorities, and some level of coaching.
To succeed, a financial plan has to start by clearly defining why money is important to you, a topic we will discuss often. You have to define your set of values and priorities. These form the WHY of your plan, the key to keep you focused on the long view.
Coaching is essential too. The goals that require planning are the most important in our lives: our kid’s education, our independence, our retirement, our legacy, and [your goal here]. We don’t just want to give it a shot, we want to give it our best shot, and coaching can help us do that. Coaching can help us monitor and celebrate progress, deal with setbacks, and make proper adjustments as life happens.
The best plan won’t help you if you can’t stick with it, and research in behavioral economics shows that key reasons for this are failure to consider personal motivations or values, and lack of coaching.
The benefits of this approach extend beyond investing. Start with your financial plan, and this ability will also help you in other parts of your life, including relationships, your career, and life experiences.
Check our website to learn more about how our investing and planning approach can help you achieve your life goals
Until next time.
Massi De Santis is an Austin, TX fee-only financial planner. DESMO Wealth Advisors, LLC provides objective financial planning and investment management to help clients organize, grow and protect their resources throughout their lives. As a fee-only, fiduciary, and independent financial advisor, Massi De Santis is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.