With spring well underway, we know there are certain things on the horizon: warmer weather, invitations to graduation parties, and the occasional backyard barbecue. We see these things coming, and we make decisions based on our certainty that they will happen, like putting away our winter clothes and taking out our sandals and short-sleeved shirts.
I’m writing you today to share my thoughts on how tempting it can be to carry the same approach over to our financial lives – and why you can benefit from avoiding this temptation.
We started our year still experiencing the effects of the pandemic, but the real headline was inflation and concerns over climbing interest rates. Not only have inflation and interest rates spiked, but the current global situation – besides being a humanitarian crisis – has added fuel to the fire of financial doomsayers.
With a horizon this bleak, the case for dramatic action seems like a pretty strong one. And it would be – if we hadn’t been here before.
Short-term “sure things” usually aren’t.
The fact of the matter is, we have been here before. We have had health crises. We have had political and social events that affect industry and supply chains. We have had stock market crashes, recessions, and inflation. And we have rebounded from all of them.
None of this is to downplay the challenges of our times or the difficulties people may be facing. What is important to note, however, is that when investors make emotion-based decisions on what looks like a sure thing in the short term, it often sets them back in their progress toward their long-term goals.
Conversely, when there is a purposeful plan in place that is adhered to with discipline and consistency, there is also a greater likelihood of achieving financial freedom over time.
Good habits trump good ideas.
“Good ideas” sound much more appealing than good habits. But the very thing that makes good ideas exciting also makes them an unsound investment strategy: they are reactions to the moment. Good ideas whisper (or shout) in the investor’s ear, “Hey! Look what’s happening! Let’s do something!”
In contrast, good habits are driven by discipline, not adrenaline. If you’ve ever tried to quit smoking, get fit, or master a new skill, you know that building a good habit takes time and consistent effort. Your emotions about those goals may come and go; sometimes you will feel motivated, and adding an extra mile to your run will seem easy. Other days you will feel pulled in a million different directions, most of which will provide temporary satisfaction but are ultimately contrary to your goal.
It’s easy to talk about discipline and good habits in life when your motivation is high and conditions are favorable, just like it’s easy to talk about good wealth management habits when the economy is booming. The true test – and a deciding factor in achieving your long-term goals in life and finances – is whether you practice discipline and adhere to good habits in the face of transitory obstacles.
Build good habits by checking bad ones.
One of the best ways to fortify a good habit is to put some sort of check-in in place to counter bad ones. If you’re trying to adopt a healthier work-life balance, for example, you may want to track your daily activities in a mindfulness app to help you avoid unhealthy choices like working too long without a break. The app acts as a form of resistance to the bad habits that may derail you from your course. It is a buffer between you and the unhealthy work habits you’ve built up, slowing down your decision-making so you have time to refocus on the benefits of adhering to your plan.
Shoring up good wealth management habits works the same way. At N1 Advisors, it’s our goal, as we work with you, to be that resistance if needed. As your partner and advocate, we can act as a safeguard against hasty, reactionary decisions that could delay or divert you from the future of financial freedom you are working to achieve.
The single best investment you can make is in the discipline needed to weather short-term volatility for long-term success, and we’re grateful for the opportunity to support you in strengthening good habits that lead to greater financial freedom.