“The things in our control are by nature free, unhindered, and unobstructed, while those not in our control are weak, slavish, can be hindered, and are not our own.” Epictetus
We often become our own worst enemies by focusing on financial events we have no control over. We become bitter and irrational over imaginary market enemies that “are out to get us.” This spirals into unproductive behavior that only compounds our sorry situation.
Understanding what we can and cannot control is a secret to happiness in both life and investing. Getting upset at things like the weather, or a negative stock market surprise, is understandable; but, it is wasted emotion, nonetheless.
Having a realistic approach of what is within our grasp will give us more clarity about the world. This will also provide us a much greater chance of becoming successful investors. Looking for solutions from an insider’s perspective, rather than clawing at outward straws, is a far more effective strategy for all of us.
- We cannot control being laid off from our jobs for reasons we had nothing to do with. We can control having an emergency fund in place with one year’s salary stashed away.
- We cannot control what asset class will outperform in any given year. We can control diversifying our portfolios by owning all of them to match our time horizons and risk tolerance levels.
- We cannot control having an unavoidable accident that leaves us unable to work for several months. We can control purchasing a disability insurance policy in advance that covers much of our lost wages.
- We cannot control who is elected president. We can control not letting politics play any part in our investment decisions.
- We cannot control the fact that markets do not have positive returns every year. We can control our savings rate, tax management and investment costs to help smooth the ride.
- We cannot control the fact that most private sector jobs no longer offer a pension. We can control contributing enough to our 401(k) plans to, at the very least, qualify for an employer match.
- We cannot control what disaster du jour hysterical pundits scream about in the financial media. We can control our ability to shut off the T.V. and do something more productive with our time.
- We cannot control the fact that too many so-called “financial advisors” are nothing more than glorified used car salesmen pitching the product of the month. We can control choosing a real financial advisor; a fee-only fiduciary who is legally bound to look out for our best interests.
- We cannot control the fact that some private universities cost more than $70,000 a year in tuition. We can ignore peer pressure and encourage our children to attend public state universities at 1/3 the price.
- We cannot control the fact that markets tend to lose 40-50% of their value periodically. We can control getting through this unpleasantness by understanding this, too, shall pass and the reason why we invest in stocks is they give us our best chance to protect our future purchasing power over the long term.
- We cannot control the fact that too many of us pick investments on the basis of a good story rather than data. We can resist this urge by creating a portfolio based on evidence, and sticking with it through both thick and thin.
- We cannot control the likely possibility we will never become a billionaires. We can control our level of happiness by valuing experiences with our family and friends and doing things for others.
These suggestions are much easier said than done, due to our imperfections as human beings. We need to understand that we can’t control many of the events that affect our finances but we can control how we react to them.
In the words of one the wisest men our country ever produced, Ben Franklin: “While we may not be able to control all that happens to us, we can control what happens inside us.”
Keep these words of wisdom in mind the next time it rains on your wedding day or the stock market delivers an October crash.