It is often said that “life is a journey, not a destination” (Emerson, Aerosmith, etc.). That may be so and as is quite often the case, human behaviour tends to follow this tenet. However, in the world of wealth management and investing, it is in fact quite the opposite.
As human’s we seek pleasure and gratification (and are wary of pain) which often leads us to desire results (immediate gratification) in the short-term that may not necessarily be consistent with achieving our long-term goals. Often, these short-term results will influence our thinking and behaviour. If we are unable to reconcile the short-term results with our expectations for the attainment of our long-term goals, we may be vulnerable to believe that we need to change the current approach. Advisors who smell that vulnerability are always waiting for the opportunity to pounce. The narrative of the day (the shiny object as I like to refer to it as) is geared to question our judgement and offer us “new paradigms” (the hyped-up themes of the day) to sell us on the new shiny objects. The advisor’s can’t wait to get access to new sources of revenue (commissions and fees) from those that they can entice to make a change, In my twenty plus years in this business, I have seen plenty of this. We are wired to want the journey to give us excitement. That is why the business news media exist, not to give us pause to reflect on our long-term objectives and the ultimate destination (how boring would that be?), but to entice us into following the current days exciting narrative(s). The advisor sales forces are poised, ready to grab those that jump into the slipstream. Think Cannabis companies in 2018. Bitcoin, Tesla, ARK Innovation, etc. now.
If we are told that a diversified and balanced portfolio (before fees and taxes) should garner an average annual return of 7% over multiple years, we will have a tendency to second guess anything that comes in over a shorter time period that is less than this. That is just how we are wired as human beings (for the most part) and we are eager to listen to whatever appears to be the most hyped to add some zing and hopefully, better than what we are currently getting in returns. Often, the risk factors (that should make us a little more cautious) get understated in the sales process.
The wealth management destination is our ultimate goal, whatever that financial freedom might mean to us. The journey should be predictable, as best as is possible. That is why we need competent financial planning, solid risk management (investing strategy), why we need to understand human behaviour (behavioural finance) around money and its good (and bad) attributes and why we need good advice (vs. possibly conflicted and overly optimistic sales people and what it costs us). Financial markets and economic circumstances will always cycle through (they always have throughout history, always will into the future), in many and quite possibly unpredictable ways, but we should not allow the journey to put us off our ultimate destination. Make a plan, monitor it, adjust it within the parameters of the plan, but most importantly, stick with it.