15 Things I’ve Learned in the Last 15 Years

When I started in this business 15 years ago, one of the firm’s owners, Jon Vaughan, warned me that I wouldn’t really know anything about managing money until I had been doing it for at least ten years. At the time, I thought he was crazy. I had an undergrad degree in economics, a law degree, an MBA, and passed all the securities exams. It wasn’t going to take me ten years to figure things out.

But he was right.

From day one, I knew how to make spreadsheets and explain the difference between stocks and bonds, but I didn’t understand that wasn’t really the job.

Understanding only comes with time, so in honor of 15 years, here are 15 things that took me a while to realize:

1. When it comes to investing, simple is better than complicated.

Humans are wired to think that complicated strategies are better than simple ones. This is tempting to believe, but I’ve never found this true.

2. Risk tolerance is unlimited on the way up and non-existent on the way down.

You can’t trust a risk tolerance questionnaire. An investor in a bull market who promises to excitedly embrace a 30% pullback as an opportunity to buy more will inevitably try to sell everything when it happens.

3. The people with the fanciest stuff often have the fewest investable assets.

Many years ago, a guy attended one of our seminars and asked me to meet him at his house for an initial consultation. I pulled up to a 15,000-square-foot mansion with a Bentley in the driveway, and when we reviewed his financials, he was worth negative $14,000,000. I couldn’t help him. Just because someone has an expensive car doesn’t mean they have a lot of money; it often just means they have an expensive car.

4. If you are bad with your money, you’ll be just as bad with an inheritance.

If someone has money problems, inheriting or receiving a cash windfall won’t fix things. It will temporarily solve the existing issues, but new money issues will quickly reappear.

5. People can convince themselves of anything.

Incentives drive everything. Nothing is easier to believe than an idea that you desperately want to be true.

6. It is okay not to maximize returns.

A person’s investments should be tailored to whatever goal she is trying to accomplish. A retiree’s goal is often to minimize the risk of running out of money, yet she will evaluate the performance of her investments based on whether they outperformed the S&P 500.

7. Investing without a financial plan is a strategy that will eventually fail.

Having a plan creates the confidence to stay invested when your instinct is to sell. This alone is going to improve an investor's long-term returns. The fact that the plan will also likely give investors the confidence to increase spending on things that make them happy is icing on the cake.

8. Economic predictions and market forecasts are not helpful for investors.

It is nice to imagine that someone, somewhere, has models of the past that can be used to predict the future consistently, but I’ve never met that person or seen that model. Pretending they exist is counterproductive to long-term success.

9. Markets can stay irrational longer than an investor can stay solvent.

Human nature being what it is, high prices are often followed by even higher prices, and low prices are often followed by even lower prices. Never bet on the timing of a trend reversal.

10. Being smart and being a good investor are very different things.

The most important quality for an investor is temperament rather than intellect. People who try and outsmart the market often have the worst returns.

11. There is always a reason to be fearful, but the world rarely ends.

The world will always feel uncertain, and there will always be countless reasons not to invest. However, uncertainty creates value. If the world ever felt perfect and the markets completely safe, it would be time to proceed with tremendous caution.

12. No one lives life in the long term.

Ben Carlson has written that long-term returns are the only ones that matter but you have to survive a series of short-terms to get there. Being a successful long-term investor is simple but not easy.

13. You only need to get rich once.

If you have accumulated enough wealth to accomplish your financial goals, there is no shame in taking chips off the table. Sacrificing what you have and need for what you don’t have and don’t need is never a good trade.

14. Spending money in the first 6 – 12 months after retirement is hard.

On paper, retiring is easy. But actually retiring and actually spending money once paychecks stop can be extremely difficult. A large portion of our job is helping clients spend more money rather than less.

15. My wife is always right.

This one may not be universally helpful for other people, but my natural instincts are usually wrong. So, if I say we should do something and my wife thinks we should do something else, we should probably do whatever she says. It shouldn’t have taken me so long to figure this out, but better late than never.

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Personal note:

Last weekend we had a lacrosse tournament in Arlington. It was 45 degrees and raining but my younger one got to play on the same team as his brother so I couldn’t complain too much.

He tried to blend in, but it turns out that 4th and 6th graders are not the same size.