Within the “religion” of investing the main deity is the God of Maximus. For many, optimizing and maximizing investment returns are the most revered commandments of the investing faith. Here’s the problem, maximizing returns is purely a point in time objective. That is, you might actually maximize returns versus all other alternatives in some short timeframe,(by chance or luck),but that doesn’t really matter. What actually matters is achieving the long-term results that allow you to sustain your lifestyle for decades past retirement including living cost increases. Inevitably, the focus upon the wrong point (maximizing returns), detracts from the right point (long-term outcomes).
The genesis of optimization theory derives from microeconomics and is meant to convey the product price point where producers can maximize profits from consumers. That’s all well and good but has limited application to investing for a specific purpose over a several decade timeframe.
The Lure of Returns
The constant lure of more returns is indeed a false God since this has no specific bearing on your precise circumstances. Based on my experience, I would posit that the altar of maximizing returns is really just a placeholder for “fuzzy meaning.” That is, you absolutely must have personally meaningful long-term goals in order to tamp down the allure of the maximizing/optimizing gospel. Otherwise, you will surely find yourself darting from one investment to the next, constantly seeking more return. There is a reason most investors generally underperform the markets by several percentage points each year. Constantly trying to maximize returns is the chief culprit.
Candidly, if you take a cursory look at many financial advisor websites, you will find a large number of advisors preaching the gospel of maximizing returns. Little wonder that investors think worshipping at the altar of maximizing/optimizing is the right approach.
Stop Trying to “Maximize”
Instead of trying (in vain) to always maximize returns, shift your focus to aligning your investments with your purpose for investing. The closer that your investing strategy and investing behavior line up with your values the better.
Creating a sustainable financial future really boils down to things you must do and things you should avoid. Start there. Ready for a real conversation?