29 Oct 2020 What If You’re Wrong?

What if your job isn’t secure? What if your trading strategy fails? What if housing prices don’t go up forever?  

What if this isn’t the end of the world? What if you get through this? What if things turn out better than you imagined?  

Maybe the most common character trait I see—in myself and others!—in the year 2020, in the final days leading up to this election, is dogmatism. The ability to seriously grapple with the real possibility of our own wrong-headedness has atrophied to the point of non-existence. And this is to our detriment, both as human beings in a society of human beings, and as investors trying to do the things we dream of doing without running out of money.

Of course we’ll never fully outrun dogmatism. Dogmatic people are bred in the messy tension of closely held beliefs and real fears. Religion, political affiliation, and sporting allegiance are maybe the three easiest grounds to identify dogmatic thinking, for the very reason that those places provide an outlet for us to exercise our beliefs while attempting to protect us from our fears, but the world of money and finance ought to join that trifecta. With money, the beliefs we hold dearly and the fears we slink away from can cause us to become entrenched in unhealthy and destructive tendencies. 

But if dogmatism is never going away, how can we keep it from poisoning our lives and ruining our finances? I think we have to consider doing two things.

The first thing we must do is be open to surprise. The world is surprising, whether we admit it or not, and it’s in our dogmatism that we don’t admit it. Daniel Kahneman, the Nobel Prize-winning economist said this a few years ago: “Whenever we are surprised by something, even if we admit that we made a mistake, we say, ‘Oh I’ll never make that mistake again.’ But in fact, what you should learn when you make a mistake because you did not anticipate something is that the world is difficult to anticipate. That’s the correct lesson to learn from surprises: that the world is surprising.” Bad surprises often happen quickly and good surprises generally take much longer to develop, but we have to be open to both.

The second thing we must do is not run to the other extreme of dogmatism—maybe you could call it “wishy-washyness”—but instead build margin into our lives. We can live grounded lives without being dogmatic, but the only way to do that is if we build in ways for our mind, spirit, and body—and yes, even our finances!—to move and stretch in the face of surprises.

How do we build margin financially? Two ways, primarily: The first is to live well beneath our means. The second is to use the extra (i.e., the part of our means we aren’t spending) to build enough cash so that we can sleep well at night. Over time, the two types of financial margin begin to do some amazing things:  

1. We can be more generous, which then leads to all sorts of other benefits.
2. We can leave our invested assets alone during periods of volatility, or, if we are still saving, we can actually deploy additional cash into the stock market at favorable prices. 
3. We can be more choosy about our vocations, since a) We are already living well beneath our means and therefore don’t “command” a salary, and b) Living with a cash cushion allows us to take more risks—like choosing a new career path altogether—for the sake of increasing our mental and emotional well-being or to simply pursue a dream.
4. We can pay down debt (yes, even mortgage debt) faster, which in turn creates even more margin.

Being open to surprises through the building of margin is a great way to reduce anger and anxiety in the face of an unsure future. And wouldn’t we all benefit from a reduction of anger and anxiety these days? Wouldn’t we be better equipped to do something worthwhile with the energy we’re currently devoting to those by-products of dogmatism? If you would like someone to help guide you through that process financially, please give us a call.