Why You’ll (Probably) Die with Money


Leo Tolstoy’s “How Much Land Does a Man Need?” is a tale about a peasant named Pahom who’s only grief is “too little land” and claims, “If I had plenty of land, I’d fear no one—not the devil himself!” In true folkloric tradition, the devil overhears Pahom and decides to send him down a path of desire and temptation.

Presented with the prospect of being granted ownership (for a very small fee) of as much land as he can encircle on foot in one day, Pahom is overjoyed and readily agrees. However, like much in life, there is one important caveat: If he does not return to his starting point by sundown, his money is forfeited and he gets no land at all. After a restless night, Pahom sets off at sunrise and quickly becomes enamored by all the fertile land he sees.

The tale walks the line between the admirable characteristic of ambition and the destructive nature of greed. And while Tolstoy acknowledges hard work and discipline as catalysts for human development, he warns that it's also the space where unchecked ambition can turn to excess at best, and greed at worst.

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Man in the Mirror

 

“We have met the enemy and he is us.” 

—Pogo (via cartoonist Walt Kelly)

Famous investor John Templeton once said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”

Given Templeton’s indisputable success as an investor, few would argue with this appeal. However, like much in life, this behavior discipline is easier said than done. Research shows that people tend to make rational decisions in small matters and poor ones where much is at stake. Why? Because we’re human. As humans, we are burdened with a series of nearly inescapable cognitive and emotional biases that drive us to respond to stressful events like the stock market’s ups and downs in a way that harms our financial well-being. While numerous, this article will work to consider just one: Hindsight Bias.

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Managing Transition: The Key to a Successful Start in Retirement

Life can be summed up through the transitions that we experience. Whether these transitions are rewarding, like marriage or becoming a parent, or challenging, like marriage or becoming a parent, all involve an ongoing process of emotional and financial adjustment. However, when in a state of change, we often fall victim to our own weaknesses. The stress of these major life experiences can be too much for our minds and our wallets to comprehend. We are not built to only think logically. We embrace our emotions and when overwhelmed by these emotions, can make the wrong decision.

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Why We Fail

“The more emotional the event is the less sensible people are.”

-- Dr. Daniel Kahneman 2002 Nobel Prize Winner for Economics

Earlier this month, I had the pleasure of meeting a prospective client. My routine for a new ‘discovery’ engagement is to carry three items with me; a blank writing tablet, a pen, and an open mind. Listening and learning are my goals.

I often jump-start the conversation by inviting an answer to this question; “How can I be of good use to you today?” After a brief pause, this couple (early 60’s, professional, empty nest, retirement on the horizon) articulated their concerns about “how high” the stock market was and “how much they lost” in the financial crisis 9 years ago. That experience, combined with the volatility the stock market seems to present every day, has kept them anxious, fearful, and unable to reengage their investment program. For these folks, market volatility is a euphemism for “losing money”, a paralysis-producing perspective that is completely understandable. After all, sharp market declines can be unnerving; it is basic human nature.

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