by Baruch Labinsky
Recently I went running with a family member (I was running, and they were biking). I thought I knew the way back and was taking a circular route back to our starting point, until I realized that I was completely off base and the only way back was via the way I had run. Unfortunately, I wasn’t physically able to run further so … I stopped and commandeered the bicycle turning it into a tandem with me steering and my passenger sitting passively on the seat in the back, along for the ride. To say that the passenger was not comfortable with the situation (I surmised from the screaming) would be an understatement, but the discomfort was not because of the hard bicycle seat. Besides sitting and trying not to fall off, they had to completely let go and just trust that I knew what I was doing.
This letting go and trusting someone or something else is not a simple task. It got me thinking that while most of the time I write about people taking control of the financial aspect of their lives, there is also an element of one’s financial health that relates to letting go and trusting others. The following are a number of areas where we see this critical concept at work.
Loosen up and reduce stress
Finances are often a source of stress. When we try too hard to be in control (about things that are out of our control) it causes tension that can be detrimental to our physical health. When we are in a relationship it is even more important to ensure that financial issues do not become a point of friction. In America, a third of adults in relationships admitted that money was a large source of conflict. It is therefore not surprising that fighting about money was the second leading cause cited for divorce, after infidelity. By trusting your partner and working together to create and follow through on your financial plan, you will be strengthening your relationship in all areas, not just with your finances.
Slow and steady wins the race
Our lifestyles are often about instant gratification. From the microwave that decades ago showed us we don’t need a slow bake when we can nuke our food in seconds, to emails and – you just have to love the name – instant messaging. It’s critical that we realize that instant doesn’t necessarily mean better. That is true of many things, but in particular it should be our attitude towards long-term saving goals. Most of us will not receive an instant, huge windfall. And if that’s the case, the best way to set yourself up for retirement is to save small amounts (if that is what you can afford) and have the patience to watch it grow slowly and accumulate into something very substantial (once you have chosen the investment strategy that is right for you). When you start young and invest consistently you benefit from the miracle of compounding (once described by Albert Einstein as the “eighth wonder of the world”). Interest earned on interest compounding in a virtuous cycle will boost your long-term gains dramatically.
Markets are volatile
If your money is invested in the stock market you need to accept that markets are volatile (just look at what has been occurring over the last few months). In theory most people understand they need to stay calm when the markets drop, to avoid foolish mistakes. But watching the value of your investments shrink can make your reality quite different. Many people panic when they see large percentages knocked off their assets, and this causes knee jerk reactions, selling at exactly the wrong time (aka selling low instead of high) leading to substantial losses. Following the market daily (or hourly) will only increase your stress levels, and can be counter-productive. Learn to set up a plan and let go.
We are exposed to so much information and so many different investment options, whether it is via social media, friends or acquaintances. How often have you been tempted to invest in the ‘next great thing’, only to hear about the next ‘next great thing’ shortly after? Stay consistent to your plans and strategy. You should never go chasing returns, trying to jump on last year’s bandwagon. While there may be some highly sophisticated investors who day trade or use financial strategies to invest successfully (usually a small minority of investors), most long-term investors need to avoid reacting to market noise and ensure their investments match their long-term financial plan. Stay the course and let go. Create a blueprint for success and then let it run, evaluating your plan intermittently.
Trust your professional advisor
I’d like to think that you chose your professional advisor after you assessed that they were honest, successful and professional. When you began your relationship with them you trusted them to invest your money and help you achieve your goals. Obviously it is crucial that you evaluate performance periodically when you can assess your strategy and decide if it still meets your needs, or if the plan should be adjusted. However, sometimes you need to trust the professionals you have chosen and not second guess every move. Bouncing around between advisors and strategies is a recipe for underperforming. Trust your judgement to pick the right people to work with.
I often talk about the importance of making an effort, ‘hishtadlut’ – you can’t just sit back and wait for things to happen. But in the above points I am showing that there are times when it is beneficial to relax, build trust, reduce stress and improve your relationships (together with your finances). You don’t need to experience a spontaneous bike ride like mine to absorb the lessons. Trust me – by letting go you will have so much more to hold on to. Behatzlacha!