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Tag: financial advice
Marginal Utility and Diminishing Return
We don’t know when to stop.
At least, I sure don’t.
Sometimes, on the way home from work, I’ll swing by the grocery store, buy a pint of ice cream, 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+: OK, now I’m sick.
I learned this lesson the first time I ate a pint of ice cream 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.
Beyond a certain point, having more money will not lead to more security, freedom, and happiness.
Because security, freedom, and happiness do not come from more money (at least, not beyond a certain point). They come from knowing when to stop.
What to Ignore in 2020
It’s that time of year—investors are eager for advice and herds of “thought leaders” are competing for your attention to tell you what to do during the new year. Instead of adding to the cacophony of 2020 to-do lists, we’re switching it up by telling you what to ignore.
We’re big fans of the author and celebrated podcast host Tim Ferriss’ Not-To-Do-List, so we decided to put our own twist on his concept.
“Not-to-do lists are often more effective than to-do lists for upgrading performance,” says Ferriss. “The reason is simple: what you don’t do determines what you can do.”
Below are four types of financial information that, at best, waste time and, at worst, create stress and anxiety. It’s our hope that you’ll ignore them so you can stay focused and productive, and live richly.
Any Variation of the Headline: “X Stocks to Buy”
The 4+ billion Google results for “stocks to buy in 2020” aren’t just risky—they’re almost certainly doomed to flop.
“The track record of expert forecasters is as dismal as ever,” says David Epstein, author of Range. “In business, esteemed forecasters routinely are wildly wrong in their predictions of everything from the next stock-market correction to the next housing boom.”
As our co-founder Rick Hill says, “Stop trying to find the needle in the haystack—just buy the haystack,” which is what our clients do.
Stock Market News and Notifications
Just like watching what you eat keeps you fit and healthy, a low information diet can keep you calm and focused, especially when it comes to your personal finances. As important as the latest headlines might seem, it’s important to remember: The media’s job isn’t to keep you informed, it’s to keep you tuned in 24/7/365 so they can sell advertising. We stay tuned in to what matters over the long term, so that you can focus on what matters today. That’s the kind of tradeoff we like.
Your Short-Term Portfolio Performance
It’s nice to have our sleek app that puts your entire investment portfolio in your pocket, but that doesn’t mean you should monitor it incessantly. Redefine how you measure success – we suggest measuring your performance against your goals in terms of decades and generations rather than 24-hour news cycles.
Financial Advice from Anybody Without a Fiduciary Standard
As Matt Hall covered in his book, Odds On, most big-name brokerage firms prize sales quotas and their compensation over client care and education. In any industry, a convergence of greed and incompetence is dangerous. In wealth management, the consequences can be life-shattering for you and your family.
Before considering any financial advice, always ask: Is our relationship a fiduciary? If the answer is anything besides, “Yes, always” or if the written version is accompanied by an asterisk and a bunch of legalese, ignore it.
It’s great to pick up new productive habits, but sometimes the best way to improve your life is by subtracting, not adding. You might surprise yourself with how much you accomplish with the extra breathing room.