From The Founder: Investor New Year’s Resolutions

‘Tis the season for New Year’s resolutions. After 28 years of working with clients, I’ve decided to come up with five that I hope will help you be a happier [and wealthier] investor:

 Remember that there will always be a ‘speculation of the day.’

Now, I am writing this in late 2024, and Bitcoin is up 127% for the year. I am extremely confident that the year-end return will not be exactly that value, and I suspect it won’t even be that close. This is because the price tends to fluctuate a lot. Maybe it will be a lot higher, maybe a lot lower.

If you decide to buy Bitcoin, that is not necessarily a bad thing. However, we recommend that before you do, you understand two things:

First, Bitcoin is not an investment. It is a speculation. An investment is intended to create profit, such as investing in a company that can make money or in real estate that can generate income. Bitcoin cannot ‘create’ a profit. The only reason to buy it is to speculate that the price will go up. This is not a judgment. It is only noted that you should make sure you understand the difference.

Second, pause and consider why you are investing in Bitcoin. Is it because you believe it is a transformative idea that will cause the price to go up? Or is it because you’ve heard of other people making money in it and don’t want to be left behind? The first is a reasonable reason to speculate. The second is nothing more than our greedy human nature getting the best of us. Always remember that human nature is not a good investor!

Remember that investments cannot go up all the time. Part of our job as your financial planners is to help you divvy up your nest egg so that it is not at more risk than necessary. Still, unless you decide to place all your money into safe and guaranteed types of accounts, you have to remember that somewhere, someday, some of your investments will drop in value. Our job is to help you remember that this is okay. It is simply part of the way investments work. Your human nature will tell you that you don’t like the value dropping and you want to get out. Our job is to tell you that it is part of investing and to trust the process.

Don’t chase the investment that is doing the best.

Let me give you an example: We build you a diverse mixture of investments. We review them and calculate which has performed the best and which has performed the worst. Your human nature may think we should sell the one that performed the worst and add it to the one that performed the best. That idea, on the surface, even seems logical.

However, in investing, that is typically not the case. In fact, the math tells us to do the exact opposite. The math tells us to sell off some of the winners and add it to the losers. That may sound crazy to you, but there is an investing term for this: it is called rebalancing. The math works because it forces you to buy low and sell high. Selling off part of the winner when it’s up sells high. Adding some to the loser while it’s down buys low. That makes a lot of sense too, doesn’t it? So, remember that human nature is not a good investor!

Remember that it is about the whole portfolio, not the specific investment.

This is related to the previous resolution. If you stop and review your highly diverse mixture of investments, you will find that one has performed worse than all the rest. Human nature will want to fixate on this investment, but all this does is make you less happy and underappreciate the beauty of diversification. Remember that NO ONE can predict what will happen with investments [no, not even the people screaming into the TV screen], which is why we must diversify. When you diversify, some holdings will do better, and some will do worse.

Let the portfolio continue to work, and those will often trade places. Fixating on short-term returns doesn’t accomplish anything but make you less happy. In other words, human nature is not a good investor.

Remember that the investments serve the plan, not the other way around.

I’ve saved the best for last. This always sounds surprising when I say it, but the older I get, the more often I am reminded of it: getting the highest rate of return is NOT the point of investing. The entire point of investing is to accomplish your goals!

Why does this matter? If you’ve hired a financial planner who has done a good job of talking through your goals with you, then they have built a financial plan that is designed to accomplish your goals. Only once that plan is built is the portfolio of investments built. The portfolio is not the focus, the plan to accomplish your goals is the focus. The portfolio is only there to serve your plan, which is there to accomplish your goals.

If you can ignore your human nature, you can ignore the Dow Jones, ignore the price of Bitcoin, ignore CNBC, and ignore your brother-in-law [or plumber, or doctor, etc.] bragging about getting rich in [insert hot topic]. Instead, you can focus your time and energy on the things that really matter to you and let your plan lead you toward your goals. This should ultimately let you be happier [and wealthier] – and that is our goal for you! We hope that 2025 is the very best year of your life!