Barking up the Wrong Tree or Making it to the Summit?

March 18, 2019

Last weekend, I climbed Mt. Washington. This was a true winter ascent with crampons and ice axes. I’m planning a similar trip to hike Mt. Rainier in June. These cold-weather adventures require a tremendous amount of gear compared to 3-season backpacking, so naturally the goal is to reduce pack weight as much as possible. Thinking about saving ounces in my pack led me to the natural conclusion that losing 10 pounds would be more logical and effective than obsessing over which material my camp spoon should be made of.

And so, perhaps for a slightly different reason, I nonetheless join the millions of Americans trying to lose weight. Although I am surely not the first person to draw this comparison, I want to talk today about the similarities between physical fitness and financial fitness.

When we survey the weight loss landscape we find radical or restrictive diets, proprietary prepared foods or even pills and medical procedures put forth as possible solutions. The attraction of these products is the thought that they can deliver results without requiring the user to make any significant changes in their lifestyle.

We see similar promotions in the financial marketplace. Those advertising in the loudest and most brazen fashion always promote their exceptional investment returns. As investors, most of our conversation revolves around which advisor or strategy to use. We read financial publications to understand markets in order to gain a supposed advantage. We often spend our lunch break at orthodontic conferences regaling each other with stories of our successful real estate, crytpocurrency, alternative or private investment deals.

Unfortunately, in chasing returns, we are focusing on the wrong thing if our goal is financial independence. Just like the fad diets and superfoods listed on the covers of the magazines in the checkout line, an overly strong focus on investment returns leads us to spend most of our time barking up the wrong tree.

Let’s go back to my desire to lose 10 pounds. While I am not a fitness expert, I think it is uncontroversial to say that in order or effect a lasting and healthy change my focus must be on behavioral issues. Recreation, exercise, diet, sleep and stress management are the main factors.

In the world of personal finance, the role of investor behavior is also being recognized as the most important factor. The 2017 Nobel Prize was given to Dr. Richard Thaylor in recognition of his work on behavioral economics.

What are the behavioral factors that we all need help with? I can think of a few, including:

  • Designing a personal cash flow plan with an adequate savings rate
  • Managing debt reduction versus business investment in spite of our biases
  • Choosing an asset allocation and sticking with it during good and bad markets
  • Having a “Goldilocks” amount of insurance – not too little or too much
  • Making hard, but rewarding decisions about work-life balance to avoid burnout

If this doesn’t sound as glamorous as buying puts on Align Technology in 2018, it’s because it’s not. However, working on these important behavioral and planning tasks will inexorably lead you to your goal of financial independence.

If you want to lose weight but need help with the right behaviors, you can hire a personal trainer. You might also need a coach for your personal finances. The takeaway here is to get help mastering the simple behaviors that lead to success and not get caught up in the latest craze. You can certainly do this on your own, but if not, get with someone who can help you make a plan and help keep you accountable. That’s an advisor width paying for!

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