Advice

Let me tell you a little story about my wife and me.

At the time that this story took place, we’d been married for more than a decade. For a good chunk of that, I’d been writing a New York Times column about money and feelings. I was also a Certified Financial Planner.

Keep that context in mind as I tell you this story.

I had been traveling for a few days for work. I came home, sat down, and after my wife and I exchanged normal greetings, one of the very first things out of her mouth was, “Hey Carl, Kate remodeled her kitchen, and boy, it looks great!”

Now let’s pause real quick. Just ask yourself… what did you hear?

Because what I heard was: “Hey Carl, Kate remodeled her kitchen, and boy, it looks great… AND THE REASON I’M TELLING YOU THIS IS BECAUSE I WANT TO REMODEL OUR KITCHEN.”

I immediately stopped listening, and went into calculation mode. Approximately $49,672… at 6% interest… And so, I replied with the only possible rational response: “Cori, we can’t afford that.”

To which my wife replied, “What are you talking about?”

You can probably guess how the rest of the conversation went.

“You said you wanted to remodel the kitchen.”

“No, I didn’t. I said Kate…”

“Yeah, I know… but that means you…”

“No, it doesn’t. It means you’ve been gone for four days, and this was just me trying to start a conversation, which, by the way, is now over.”

…

Look, let me be super clear, this has nothing to do with gender. This isn’t me saying women spend money and men try to save it. There may be some differences in how men and women think about money, but if there are, I’m not privy to that information. This is just a specific example where my wife was saying something, and I was the calculator. Often the role is reversed, and my wife is the calculator.

The point here is that this conversation helped me realize that for 12 years, my wife and I were talking around money instead of about it.

This is just one example out of countless ones from my own life, and that readers have shared with me.

I think the reason we do this, the reason we talk around money instead of about it, is twofold.

1- Nobody taught us how to do it.
2- When we go to talk about money, it’s suddenly very emotional. We expect it to be rational, but it quickly ends up in the realm of feelings, and we say, “I’m never going to do that again.”

What I try to do now instead (and this is still a challenge for me), is this:

1- Ask questions. “Oh, that’s interesting. Can you tell me more about that?”
2- Clarify the conversation. “Are we talking about buying something, or are we just talking about something?”
3- Don’t calculate… Listen. This may be the most obvious one, but trust me, that doesn’t necessarily mean easiest.

Like I said, it’s a work in progress for me, too. So if you have any suggestions, feel free to send them my way!

What has worked for you?

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

There’s a difference between investment returns and investor returns… and only one of them matters.

If a mutual fund yields 10% a year for 10 years, that is the investment return.

Now, let’s talk about investor returns. The only way you’re getting that 10% a year for 10 years is if you don’t touch that investment for the whole 10 years. No adding, no subtracting. Buy it and leave it.

The problem is, very few people invest that way. On average, we only hold long-term investments for two to three years, and then we get distracted by the next hot investment. Investors almost never earn the same return as investments because we don’t hold on to the investments long enough.

The return happens… we just aren’t there to get it. And the only reason for that is our own behavior.

We think the job of any self-respecting investor is to constantly be searching for the best investment. But that well-intentioned behavior consistently leads us to buy investments that have just done well and to sell investments that have recently done poorly.

In other words, we buy high and sell low, over and over again. And it’s that repeated behavior that leads to the difference between investment returns and investor returns.

There’s a name for this phenomenon.

It’s called The Behavior Gap.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

We are really bad at knowing what we actually want.

In fact, we learn what we want by watching other people. First, by seeing what our parents, siblings, and peers want, followed—eventually—by what people on social media want.

We co-opt other people’s goals because it’s very hard to get clear about our own goals.

You know how this plays out, right?

You hear your wealthy uncle talking about how important it is to own municipal bonds, so you think you should go buy municipal bonds, too.

You hear about all the cool kids investing in startups and all the fancy people buying Teslas. Maybe you should do that, too.

There’s an old saying: We spend money we don’t have to buy things we don’t want to impress people we don’t even like. Here’s the thing: Nothing anyone else owns, wants, or does, has anything to do with you. Because they aren’t you.

You, and only you, are you. And for that reason, the only goal that matters when it comes to your money is your own.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

One of the craziest things we do as humans is take the recent past and project it indefinitely into the future.

As the news cycle has sped up, this problem has only gotten worse. It used to feel like the “recent past” went as far back as a couple of years. Today, it often feels like “recent” only applies to the last couple of minutes (or better yet, social media posts).

We think if things are going terrible, they are going to continue being terrible forever. If your portfolio value seems to be dropping, it’s tempting to say, “At this rate, if this continues, I won’t have any money [insert number of months] from now.”

On the other hand, if things are going well, we expect them to continue going well forever.

If, for each of the past three years, you’ve gotten a bonus in January, it may be tempting in October to factor that bonus you will surely get in January into a big financial decision. Of course, it’s terribly disappointing if that bonus doesn’t come (and by the way, there’s no guarantee that it will).

We would do well to make our memories go back just a little bit further than the common goldfish. That way, we may find ourselves recalling a time when the bonus didn’t come or the market was better.

If we can do that, we stand a much better chance of avoiding falling into the same traps over and over again.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

I absolutely LOVE Jeni’s Salty Caramel Ice Cream. 

Sometimes, on the way home from work, I’ll stop at the grocery store, buy a pint, and eat it. 

That’s right. The whole thing. 

Yes, I know. That’s a LOT of ice cream. 

I’ve noticed that a very interesting thing happens when I do this: 

Bite 1: Best thing in the world, ever.
Bites 2–10: Really good.
Bites 11–15: Good.
Bites 16–20: Meh.
Bites 21+: Okay, now I’m sick. 

I learned this lesson the first time I ate a pint of Jeni’s in a single sitting. 

And yet, for some reason, I still occasionally repeat the experiment. 

Of course, this phenomenon doesn’t only occur with ice cream. This is a well-documented economic principle called Marginal Utility, and (you guessed it) it applies to money, too. 

Just like ice cream, beyond a certain point, having more money will not lead to more security, freedom, and happiness. 

Fact. 

The academic literature on that is clear. 

My question is: Why do we devote so much of our time, energy, and attention to having more? 

Wouldn’t we maybe be better off if, instead, we focused on having enough?

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

If you’re worried about the stock market, find someone to give you a hug.

That’s right. A hug.

It may come as a surprise, but that would actually do most of us some good.

When the markets go down and the financial pornography network starts yelling that you should save yourself, it feels like a wild animal is chasing you. The only thing to do is run!

Feeling scared is normal at that moment, and the last thing you need is a lecture on the history of long-term stock market returns.

You don’t need facts and figures; you need a hug! You need someone to listen to you!

You need empathy, kind murmurings, physical affection—an embrace.

After the hugging is over and everyone is feeling reasonable again, you and your advisor can review the careful analytical work that went into designing your portfolio.

You know—revisit the goals and values that were baked into that analysis. You can even consider the weighty evidence of history and talk about how the best thing to do is stay invested. All of that is important.

But first, a big bear hug.

I promise, it will help.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

Most of us make the same mistake with our money over and over: we buy high out of greed and sell low out of fear.

Just look at mutual funds.

At the top of the market, we can’t buy fast enough. At the bottom, we can’t sell fast enough. And we repeat that over and over until we’re broke.

Can you imagine doing this in any other setting? Imagine walking into an Audi dealership and saying, “I need a new A6.” The salesperson says, “Oh my gosh, you’re in luck, we just marked them up 30%.” And you say, “Awesome, I’ll take three!”

Look, I get it.

We’re hardwired to get more of what gives us security and pleasure, and run away as fast as we can from things that cause pain. That behavior has kept us alive as a species. Mix that with our desire to be in the herd, the feeling that there’s safety in numbers, and you get a pretty potent cocktail.

When everyone else is buying, it feels like if we don’t join them, we’re going to get eaten by the financial version of a saber-toothed tiger.

But it doesn’t take a genius (or Warren Buffett) to see that this behavior is terrible for us when it comes to investing.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

Tell me if this sounds familiar.

You go to make a decision. At first, it seems relatively simple and straightforward. But then you do some research. You read reviews, ask friends, make pros and cons lists, and consider edge cases and nuance. Suddenly, your simple decision is so complex, you feel like you’re in the middle of a giant ball of yarn and can’t get out.

I used to think when I found myself in the complex middle that I had done something wrong. But now I realize it’s actually part of the decision-making process. It’s supposed to be confusing.

We’re supposed to spend time in the complex middle.

The question is, how do we get out of there? The answer is, you get quiet.

After you’ve done the research, after you’ve done the homework, after you’ve considered the edge cases and the nuance… just get quiet.

For some people, that may look like sun salutations. For others, it’s prayer or meditation. For me, it’s often as simple as moving through the mountains.

I take that problem to my quiet place, and then I feel my way through.

I ask myself: “What feels right?”

And again, it’s important to emphasize that you’re relying on what feels right after you’ve done the research… not instead of, but after the messy middle.

So next time you’re in the messy middle, don’t despair. Remember that it’s a necessary step between simplicity and elegant simplicity.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

There are a lot of people running around out there making a lot of noise and waving their hands, trying to tell you what you should be focusing on as an investor.

These “hand-wavey” people talk about China, things like the Fed, monetary policy, stimulus, asset allocation, cryptocurrency, and shiny objects like silver and gold. It’s an awful lot to keep track of.

And don’t get me wrong, some of those things actually do matter. It’s not a bad idea to learn about them.

But one thing is certain: When it comes to investing, nothing matters anywhere near as much as your behavior.

You can design the greatest portfolio ever created by humankind, and one behavioral mistake a decade could mean you would’ve been better off in CDs at your bank or stuffing the cash in your mattress.

So yes, the economy matters, smart portfolio design matters, how much we have in small cap, value and growth, all those things matter. 

But the thing that matters most is having investments that will allow you to behave.

In fact, I would argue that even portfolio design only matters to the degree that it influences good behavior.

Arguing over whether you should have 17.2% or 17.5% in emerging markets might be an interesting debate, but the difference between 17.2 and 17.5 is a misdemeanor when the felony we’re all committing is behaving poorly. 

So next time a “hand-wavey” person shows up in your face telling you all the things you should be doing, just smile, nod, and walk away. 

And remember that none of it matters if you don’t know how to behave.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

We all have blind spots, and by definition, you can’t see your own.

Let me give you an example.

One time, I was having a conversation with a friend of mine. Let’s call him Dave. Dave was a retired investment banker who really knew his way around money. If anyone knew how to invest, it was him. But he was looking for help managing his portfolio. I asked him, “Dave, of all the people I know, you’re in the best position to deal with your own money. Why do you need help?”

“Carl,” he replied, “I could manage my own money, except for the ‘I’ part.”

He recognized that when it came to his own money, he had blind spots. He recognized the value of having someone else help him see the mistakes he might make.

This is an important point to understand: You don’t hire a coach, a financial advisor, or a consultant because you’re stupid. You hire one because they are not you… and, by definition, that means they will see things about you that you cannot see about yourself.

And that, my friends, in and of itself, is invaluable.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.