1 – The world will never be the same. The truth is, the world is always constantly changing. There will be major differences for a while but more minor differences in the long term. We won’t be wearing masks and physical distancing forever. As Cleveland Clinic President Dr. Tom Mihaljevic says, “we can only hold our breath for so long.”
2 – Everything is a “Sophie’s Choice”. This is the way the pandemic has been framed by the political class and the media from the very start. The truth is, choices about our physical and financial lives are inexorably intertwined. The choice is not about one versus the other, it’s both combined as a whole. There are embedded risks and costs with our decisions as the chart below details.
3 – What worked in the past won’t work now. Umm, no this isn’t true either. We have detailed and reliable market history for 94 years that provides ample evidence about what works (and what doesn’t). Sure, 80% of investors try to “outrun” this long-term data but that has always been the case. If anything, principles of global diversification and paying attention to costs matter even more today.
4 – The world is more risky now, so my investments should be less risky. Well, let’s define risk at the start. It’s not short-term price changes (volatility or variability), but instead permanent loss of invested capital. Your need for “risky assets” relates directly back to your base reason for investing, your Why. You have to accept some volatility/variability in order to achieve long-term returns above inflation which are required for financial sustainability.
5 – Some experts say you should abandon passive or index funds in favor of stock picking funds in the post Covid-19 world. The “experts” have generally said this for decades because it serves their interests and not yours. Every time there is a recession, the airwaves and internet explode with “experts” saying to follow the actively managed path. This is nothing new. Recently, famed investor Warren Buffett disclosed that his estate documents direct that 90% of his investment assets be maintained in passive or index funds. Buffett may be one of the few humans alive that have demonstrated some ability for selecting stocks, yet these are his instructions. Do you know better?
It’s more important than ever that serious investors dispel the common narratives attached to investing and financial planning. Long term financial success is not about complex, tricky investing or tax strategies; rather, it’s about connecting your life habits with your life values.
Most financial problems trace back to a disconnect with your real-life values. Human behavior often gets in the way and behavior can be very hard to change. In order to find the solution, you have to be emotionally connected to your values, your why, (remember- what are you trying to accomplish; who are you trying to protect). Ready for a real conversation?