Avoiding Extremes in Financial Planning (and in General!)

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By Bruce Eisenhauer

 

Years ago, a speaker at our church encouraged us to “avoid extremes.” Right away my mind went to sadness or anger and he addressed that. The part I didn’t see coming was to avoid extreme happiness or being extremely prideful.

The point of the message was when we allow ourselves to be extreme in any direction, we can start to justify actions or thoughts that we would normally never entertain.

He told a story about an attorney who made partner in his firm and went out to celebrate by having a few drinks with the other partners. It was kind of a rite of passage. He wasn’t a drinker but justified his actions as a one-off type of event. He was pulled over on the way home by local police and was arrested for a DUI and ultimately lost his promotion at the firm.

The message and that vivid story had a great impact on me. I thought about my life and some of the poor decisions that I have occasionally made, and I realized they usually were the result of an extreme state of mind for me at the time. Sometimes happy, sometimes sad and sometimes prideful.

Avoiding extremes in financial planning – and life in general – is a strategy to live by.

Coaching and Parenting

I’ve always been active in sports as a player or coach and I think about the jubilation of wins and the agony of defeats. If I wasn’t mindful of my actions I could say or do something that would not be in my normal character and ultimately could embarrass me, family or teammates.

As a parent, I gave a lesson to my family with this same message on avoiding extremes and reminded them of it often as they faced different experiences in their young lives. My wife and I also try hard to live between extremes for our own benefit and to provide that example to our family and friends.

Like anything else it requires work and we are not perfect at it. I’m not saying we should not experience all of these emotions, I’m just saying we should not allow them to get to an extreme state.

Respecting Others’ Journeys

We all have our personalities, characteristics, and core values that make us who we are. Do we get so extremely comfortable in who we are that we never entertain new thoughts, directions, or possibilities that are presented to us?

I watched the news and story after story was an extreme belief in one direction or another. The narrative was always tinged with “if you don’t believe what I believe then you’re wrong” and even worse, somehow “less” than me.

I wish I was able to say that all of my opinions and thoughts are absolutely correct, but I have enough wisdom and have been humbled enough to know that is not true. I try to always listen to new ideas or different opinions and then make an informed decision to adopt or dismiss.

Today’s Investors

I think about when I first came into the investment business and a lot of strategies just involved putting together a good allocation of mutual funds based on a client’s risk tolerance, experience, time horizon, and financial situation and then just employing a buy-and-hold approach.

Now we tend to see a much more hands-on style of active management and constantly researching what is performing and what is lagging. We use individual stocks, exchange-traded funds, bonds, or mutual funds when appropriate to stay on top of what is a changing and reactionary market.

Sometimes just staying abreast of current events can help anticipate changes that will benefit the investor. I’m conservative by nature but I do know that not all conservative ideas are correct, nor are all liberal ideas wrong. There is almost always middle ground to be had.

I also know that if someone shares a different opinion that does not make them wrong, bad or somehow less than me. It makes them a person with a different opinion that either makes sense to me or does not.

Having conversations helps us to grow, being exposed to new ideas helps us to grow, and not being extreme in our behaviors but true to our character gives us a safety net and boundary.

To Thine Own Financial Values Be True

When it comes to investments, have conversations with your advisor, listen to what he or she says, and then use your core values, character, and non-extreme reactions to come to comfortable decisions.

Make sure you work with a fiduciary you trust and you know has your best interest at heart. Your advisor should be grounded and not making what you feel are reactionary decisions. Avoiding extremes in financial planning should be ground rules for your advisor.

How can our advisors help you? Get in touch for a complimentary initial consult today!

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