I once heard a golf pro claim that he could give valuable advice to any amateur without ever seeing them swing a club. That advice was surprisingly simple: slow down. That is remarkably good (and accurate) advice as far as this amateur is concerned but moreover my limited observations would suggest it is in fact a good bit of universal advice. That got me thinking. Is there similar universal advice for Canadians when it comes to their financial life? As I have recently written, this is a dangerous claim to make. We are bombarded daily with suggestions that look a lot like universal advice and yet are not. But, I will contend that there are a few, very simple mistakes that almost everyone makes, including many of the people who are supposed to managing our money for us. Here is my short list.
- Know what you want. This is a constant theme of mine for good reason: it is the most valuable thing we can do, and yet we don’t do it. Ask the average person what their investment goals are, and they will invariably tell you that they are trying to increase net returns. “To what end?” one may ask. “To have more money, of course.” If your goal with money is to have more money you are missing out on the most powerful tool in your financial toolbox. Stop for a moment and picture your ideal future, some years from now. What are you doing? Where are you? Who are you with? Now build a financial plan to get that future. Taking this first and usually overlooked step is something akin to magic.
- Stop making changes to your investments. With our obsession about fees you may be thinking that this advice is about reducing costs. Nope. It’s simply an admission that predicting the future is, well, impossible and yet we somehow convince ourselves on a regular basis that we have that gift. The average investor underperforms the market by a wide margin, and while there is a lot of psychology that could be discussed here, the short answer to solving this problem is to simply stop trading. At our firm we call this a “bias to inaction.” A futurist claimed that the factory of the future will have just two staff – a human and a dog. The human is there to feed the dog. The dog is there to stop the human from touching anything. If only we could teach our dogs to growl when we threaten to sell that underperforming asset.
- Put your savings on autopilot. Lots of people do this, but even those folks almost never do enough. Your financial plan is going to build in a certain dollar amount each year that is directed to savings. Divide that number by 12 and make those contributions every month. Spend the rest of your income. This advice is very well articulated in countless books and articles about personal finance. And yet not doing this is one of the most common reasons we fail. Don’t overthink this. Just do it and the future you imagine is coming your way.
- Get help. My best friend has been lamenting for years that he should take some golf lessons. This summer he did, and he finished the year with scores that he hasn’t seen since we were kids. Actually, I don’t think he’s ever scored so low. Every golf pro on the tour has a coach/instructor that she/he gets help from regularly. And yet we think we can figure out golf, or our finances, on our own.
I wish the golf ranges were open – I really need to work on slowing down my swing.