The 7 Research-Proven Behaviors Leading to a Life of Joy and Fulfillment

Joy & Fulfillment

Courtesy of Christian Escober

We all get in a funk once in a while. And that is just how life is, right? Better to accept than fight it, but it sure would have been nice if Mrs. Doubtfire had taught me this in kindergarten.

Many days you can’t seem to get anything right and your life seems to be in perpetual drift mode.

You let friends tell you what is important.

You eat that big burrito at lunch to soothe your anxiety over what your boss is likely to say when you tell him that you have yet to read that (yawn, yawn) TPS report.

You fall asleep alone in front of Friends re-runs only to wake up, crawl into bed and, yes, lie there exhausted but awake for the next few hours.

Wash, rinse and repeat for the next thirty years or at least until it is your turn to really live. Pretty exhausting!

But how would you feel if your life was exactly the opposite?

You wake up every day eager to get started with the business of leading a life of joy and fulfillment.

You know people like this and you secretly catch yourself with all these ill thoughts. Yuk!

Why can’t your life be like this?

I have good and bad news for you.

BAD NEWS: There is no magic formula for leading you to a life of joy and fulfillment.

GOOD NEWS: Researchers at the University of Pennsylvania have identified 7 time-tested behaviors that you can focus on now right now to bring more joy and fulfillment into your life.

Psychologists label this framework PERMA+ and the best part of it is that everything is under your control.

It will take a bit of work of the right kind but you no longer can blame your genes or that soul-sucking job.

What science tells you to do for a life-altering payoff

#1: Behave like a well-groomed toy-dog

My dog, a Shi Tzu called Nellie Marie, has been called the happiest dog in our small community, but to be honest, she has lots of competition from other dogs in the neighborhood.

Humans have a lot to learn from these dogs — always in a good mood, wagging their tail.

Having positive emotions puts us in a good mood and according to Dr. Barbara Frederikson’s theory of “Broaden and Build” widens our range of thoughts and actions toward the better.

Positive emotions such as joy, love, and gratitude make us more receptive to doing things that bring us happiness into our lives.

Positive emotions are also associated with greater physical health.

What can you do to become more positive? Here are some ideas:

  • Think about what you are grateful for on a daily basis — you may want to consider journaling about this
  • Savor the “small” things in life such as taking a walk in nature
  • Connect with people — small talk is just fine
  • Do an activity that in the past has brought you great joy

#2: Flow like a Costa Rican river during the rainy season

If you have been to Costa Rica during the rainy season (April-November) you know how hard it can rain and how a normally meandering river can suddenly turn into an endless flow of water.

The endless flow of a river can be compared to the sensation you feel when you are immersed in an activity that you enjoy and where you lose all sense of time.

This sensation has been described as “flow” by Dr. Michael Csikszentmihalyi and has been found to be positively associated with wellbeing.

Star athletes are often able to get in a state of flow or as it is sometimes described in the “zone”, but everyday people can also experience this sensation by engaging in activities and experiences that they find enjoyable and challenging.

You can’t get in “flow” just by snapping your fingers. What you can do is pick an activity that caters to your interests and personal strengths, but that still requires some mental focus.

The beauty of finding “flow” is in doing something challenging, but where you don’t even notice the mental or physical exertion required.

Experiencing flow allows you to feel renewed and re-invigorated.

Photo by Ardian Lumi on Unsplash

#3: Cozy up to the right posse

Having high-quality social connections is incredibly important for wellbeing.

The Harvard Study of Adult Development provides the most direct proof of the value of social connections. The study initially enrolled 724 men in 1932 from various socio-economic backgrounds. Every two years detailed interviews are conducted. 60 men from the original study are still living.

The key conclusion from the study is that good relationships keep us happier and healthier. Loneliness and living in conflict are killers.

Socio-economic differences do not alter the basic conclusion that to live a happy and healthy life social connections are extremely important.

Improving our social connections is about investing in people. Even in our busy lives, we can make time for connection. For example, you could:

  • Set some time up this week (not next month) to meet a long-lost friend for coffee or a drink after work.
  • Call one relative or friend every day to let them know you are thinking of them. Don’t chicken out by using email or text messaging. People want to hear your voice. Even 5 minutes will make a huge difference to somebody in need of human connection.
  • Choose to be more conscious about listening rather than saying what’s on your mind. Let somebody else drive the agenda. Remember you are investing in the relationship.

#4: Close your eyes and imagine your own road to Shangri-La

Finding your own meaning and purpose in life is important.

  • What brings you joy?
  • What’s your ideal life?

Taking the time to think about what matters to you and why gives meaning and direction to your personal journey.

Meaning and purpose give us that sense of being part of something bigger than just our self.

We derive comfort from being part of something bigger be that religious faith, community, a social or environmental cause, or simply our own or extended family.

Research shows that having meaning in your life is among the most important determinants of joy and fulfillment.

How can you find meaning in life? Nobody is going to hand you a roadmap, so you will need to figure this out by yourself. Your meaning in life has to come from within.

You can start by taking an inventory of the values that you hold dear to your heart. Is it honesty, altruism, tolerance, dependability, humility, openness, spontaneity or something else? What values does the ideal “you” represent?

You can also take the time to think deeply about what really matters to you — your family, your faith, your work, your community, or a social cause such as eradicating global poverty. You pick, it’s your life.

One of the biggest regrets of the dying is not leading a life true to themselves. Are you?

Photo by Christoph Krichenbauer on Unsplash

#5: Keep on truckin until you run out of a road

Striving to accomplish something you consider important has intrinsic benefits regardless of how old or young you are.

Setting goals aligned with your values and working hard to accomplish those goals gives you a sense of control and gives you hope about the future.

Many people associate achievement with work but it need not be so restrictive. For example, worthy goals could revolve around a social cause or teaching skills to a broader audience.

Accomplishing individual goals makes people feel good about themselves.

Building a string of successful accomplishments builds confidence in one’s ability to overcome obstacles and is key to overall wellbeing.

If you are confused about how to set up goals you might consider the SMART framework. These are goals that are:

  • Specific — you are clear in your head what you want the end result to be.
  • Measurable — there are criteria by which to can measure your progress. If you can’t measure success or failure, you don’t have a well-defined goal.
  • Actionable — progress always requires action. You want to focus on goals where your actions can make a difference.
  • Realistic — the goal has a reasonable probability of happening if you know what to do and execute.
  • Time-bound — there is an expectation as to when you will reach your goal. It could be long-term, or in the near term, but you must be clear about it.

#6: Eat, pray and love like Elizabeth Gilbert and prance around like Mick Jagger

You might have heard the saying that “your health is your wealth”. Or that without your health you got nothing. Clearly, such sayings contain lots of truth.

Physical and mental health are important aspects of enjoying life.

As individuals, we are born with a certain genetic makeup that we have to live with. Up to recently, most people believed that one could do very little to offset the good and bad of our genetic makeup.

Recent research has dispelled this notion. For example, in a study of over 13,000 Swedish twins heredity was only able to explain 30% of the differences in longevity. Other studies support the view that lifestyle choices are very important factors in determining overall health.

Lifestyle choices are under your control. Making the right choices in your environment, diet, exercise and mental stimulation can make a huge difference to your long-term health and wellbeing.

Your health is your wealth!

#7: Don’t worry about the weather in Kansas or for that matter Manila

All people like to feel like they are in control of their lives. But in reality, life often takes us on detours and expeditions that we never anticipated. Like the weather, many things are out of our control.

What we can control, however, is how we behave day in and day out and how we react to unforeseen events in our lives. We can elect to eat well, get enough sleep, exercise and not dwell on things we can’t control.

Understanding that much in life is random prepares all of us to deal with the unexpected by being resilient and savoring the good things that do happen to us.

According to Professor Sanja Lyubominsky, 50% of our general level of happiness is determined by our genes with an additional 10% accounted for by our life circumstances (how big our house is, our marital status, how much money we have, our job status, etc). The rest — 40% — is under our control.

You may not control all events that happen to you, but you can decide not to be reduced by them.

– Maya Angelou

Ruminating over stuff that you have no influence over is pointless. When bad things happen to you focus on what you change about the situation. If there is nothing you can do, accept it and learn from the experience.

Focusing on what we can control and doing the best that we can, gives us a sense of control over our lives and is associated with long-term wellness.

Photo by Luca Upper on Unsplash

You’ll never regret investing in yourself

Call me self-absorbed or selfish but anything that gives me more permanent joy and fulfillment is worth investing in. Not only am I better off but the people around me also benefit from the boost. Good feelings are after all contagious!

Do you want to continue drifting in life?

Or, do you want to take control?

Maybe up to know you have not understood what to do. You bought that promised life-altering online course, but the magic formula proved as elusive as getting a refund.

Time to try something different.

If you have learned anything in your time on earth is that seeking a life of joy and fulfillment won’t be all a bed of roses. It won’t just fall from the sky or be handed to you simply because of your ridiculously good looks.

It will take work of the right kind. Let the 7 research-proven behaviors be your guide.

Leading a life of joy and fulfillment is not a distant pipe dream that only a few on earth can aspire to.

Joy and fulfillment are within your grasp.

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The Great Retirement Hoax: Why Focusing On Money Alone Will Not Be Enough

Photo by Rebecca Matthews on Unsplash

You have watched the myriad of commercials depicting couples living happily ever after in retirement. Pictures of healthy looking retirees on a sailboat or couples holding hands while on a river cruise of the Danube River.

Fun and adventure all made possible by the gentle and skillful guidance of a friendly looking financial advisor. The implicit message is that for you to enjoy your retirement you need to have a large nest egg and the bigger the better.

What if you are nowhere near your “number”?

What if you don’t even know how much mula you need to live comfortably in retirement?

What if you are doomed to live a life of quiet desperation tucked away in some trailer park in Florida?

Or, maybe you could put your head down and save diligently. That could set you up for the next 30+ years of your life. Maybe, you could have a conversation with your spouse/partner about what you both want to do once retired.

These situations are everyday occurrences among the 10,000 Baby Boomers retiring every day in the US.

In a recent article in Forbes, Dr. Joseph Coughlin, head of the MIT AgeLab describes a conversation with a Lyft driver called Alex. It turns out that Alex and his wife, Lee, had been diligent savers and looked forward to the day they would both retire from their full-time jobs.

Their vision of retirement, however, turned out to be very different from reality.

According to Alex, the life they found waiting for them proved less exciting and rewarding than what they had anticipated. Something besides money was missing for Alex and Lee.

What you see is not always what you get

Many people assume that once they retire from their full-time career that they will automatically transition to a life of unbridled joy and happiness. All they need is enough money in the bank!

The financial industry equates money with happiness. The more money you have saved the better your life will be. The only problem you will have is not enough time to enjoy all the niceties in life.

Boat, beach house, Gucci loafers, golf memberships, Michelin-rated restaurants — all within your reach assuming you have the necessary mula.

Sounds enticing, right?

Unfortunately, this picture of retirement does not work for 99% of retirees.

It does not work,

  • Because money is not unlimited for most people.
  • Because, even if you have enough financial resources, research shows that money does not buy happiness.
  • Because, while money can buy material things such as Red Ferraris, it can’t buy health, peace of mind, friends or a sense of meaning and purpose.

Money can’t buy what you crave

How many people on their death bed wish that they had invested in the Google or Amazon IPO’s?

Money can’t mend broken relationships with family and friends. Money can’t make those regrets floating in your head magically disappear.

Money does not make your problems go away. In fact, academic research shows that oftentimes more money is associated with higher levels of stress.

Even rappers know the truth!

“Mo Money, Mo Problems”

Notorious B.I.G

When your day comes, it does not matter how rich or poor you are. All that matters is that you are surrounded by loved ones and that you are at peace.

Money is only as good as what you do with it

Just having money laying around will not do anything for your happiness. Otherwise being a Colombian drug lord counting rolls of $100 bills would be a perfect side gig in retirement (despite the legal peril).

You would think that having money would be great. And it is, but only when used in the right way.

Having money can buy lots of material goods. It can buy you a bigger house, better medical treatment, better nutrition, and more exotic vacations. But not happiness as happiness is not for sale.

It is easy to squander money in ways that don’t give us any lasting satisfaction, but isn’t the whole point of working hard and making money to be happier?

Having money is not the problem.

The problem is how we spend it and how we ignore other areas of our lives.

Spending money on happiness is a skill not often honed

There has been lots of research in psychology on the link between money and happiness. In general, the relationship is surprisingly weak especially as people move up into more affluent income brackets.

Nobel Prize winner Daniel Kahneman has found that beyond an income of $75,000 more money does not translate into more well-being.

While the tipping point may vary with cost of living conditions, beyond a certain income level, people’s happiness is not heavily influenced by money.

Some recent research in positive psychology by Dunn, Gilbert and Wilson offers suggestions for how to spend money in particular ways that will likely lead to more happiness.

Some of the more practical suggestions include:

  • Buying more life experiences rather than material goods — the key reason for this is that our brains tend to value experiences more than material possessions. Research has shown that humans have a great ability to adapt quickly to new things. This is called hedonic adaption and applies more strongly to material possessions rather than experiences.
  • Helping others instead of just doing things for yourself — humans are social creatures whose brains benefit not only from socialization but also from being part of something bigger than oneself. Useful activities for retirees include volunteering and mentoring. Psychologists call this the “helpers high”.
  • Focusing on smaller and more frequent pleasures rather than one-time extravaganzas — research shows that happiness is more influenced by the frequency as opposed to the intensity of positive experiences. Sure, getting that new sports car feels great at the moment, but after a while, the novelty wears off. Enjoying a daily nature walk with your spouse/partner on the other hand never gets old. People that are able to derive satisfaction from the simple things in life tend to be happier.

Photo by Aron Visuals on Unsplash

Your time is happiness in the bank

Yet another set of suggestions comes from psychology researchers Aaker and Rudd, these focused on how you spend your time.

  • Spending time with the right people — happiness is typically a group sport. People with long-standing social relationships have been shown to be happier than people lacking social connections. The quality of the connection is more important than the number of connections.
  • Spending time on the right activities — activities involving other people such as dancing, going out to dinner with friends, and taking a yoga class leads to higher wellness compared to activities done alone.
  • Gaining quality time by focusing only on what is essential and outsourcing the rest — even people in retirement can fill their days with “busy” work. But are they busy with the right activities? Greg McKeown in his book “Essentialism” suggests eliminating everything that is not essential and focusing one’s time on activities that are truly important. The rest eliminate or outsource. Spend your time wisely and you will increase your happiness.

There are other important things besides just money

Our focus on money matters blinds us to the need to plan for our non-financial lives.

Many people approach retirement with the idea that if there is enough money in the kitty then everything else is going to fall in place.

But is it smart to leave the other aspects of your life to chance? After all, many of today’s retirees could be spending 8,000 days in retirement according to Dr. Joseph Coughlin of the MIT AgeLab.

The transition from full-time work to retirement is fraught with difficulty for most people. Sure there is usually a short honeymoon period, but soon after indecision and anxiety rear their ugly head.

To be happy, humans need a sense of meaning and purpose.

To just be wandering around in life leads to wherever the wind is blowing.

  • Is that where you want to end up?
  • Do you still have some dreams and goals that you want to pursue?
  • What truly matters to you?

Maybe you want to give back to your community. Maybe you want to take care of your grandchildren and share your values with them. Maybe you want to move abroad and learn a new language and culture. Maybe you want to start a small business tied to something you are passionate about.

People want to feel fulfilled in their lives. To know that their presence on earth meant something to the people they came in touch with. That they lived according to their deepest-held values.

“Happiness is when what you think, what you say, and what you do are in harmony”

Mahatma Gandhi

You still need to drive to your destination

Your meaning and purpose act as your destination in life. But knowing your destination and having enough money to fuel your journey is not enough.

You also need to be healthy — physically and emotionally. Your body, mind, and spirit are all connected. Sure your body will age but your mind and spirit can elevate you even during the most trying times.

Good lifestyle habits and feeding your brain with stimulation lead to greater life satisfaction.

You may also want some friends and family along for the ride to keep you company during the good and bad times. Your social connections in life matter a lot! Cultivate your friendships and stay close to your family. You will eventually need them.

What you do during your long journey is also important. Focus on activities that give you enjoyment and pleasure. The key is doing, not just planning to do. Maybe you want to hone your music skills, work-part-time to share your experience, or tend to your vegetable patch. Just watching TV all day does not count.

And don’t forget that what you see along the way can also give you great satisfaction in your journey. It is not just getting to your destination that matters, but also how you get there.

There are always different paths to your destination. Choose the route whose surroundings are most closely aligned with your values and what you are trying to accomplish in life.

Your environment and lifestyle play a huge role in getting you to your destination. Good intentions are no match to a poor environment according to Stanford psychologist BJ Fogg.

Photo by Nathan Dumlao on Unsplash

Your money does not determine your fate

Giving money the power to shape your life is an easy way out. You know that designing the life you want is up to you and you only.

Sure, money can be a hurdle just like not having Gisele Bundchen’s or Brad Pitt’s looks. Very few hurdles in life can’t be overcome if you put your mind to it.

Sure money is necessary for living, but beyond a certain amount required for living focusing on other areas of your life will yield bigger pickups in happiness than adding another couple of winning trades to your 401(k).

Your happiness is about balance and congruence.

  • Balancing all important aspects of your life — health, mindset, social, finances, your activities, and lifestyle in general.
  • And making sure that all aspects of your life are in sync with each other.

Start with figuring out what you want out of your life and why it matters to you. You might want to visualize like Stephen Covey did what your 80th birthday party might look like — who would attend, what they would say, the music, the general vibe of the party, etc.

Once you know what matters to you and why the rest is execution.

As Tony Robbins likes to say “there are a million ways to get things done”. You just have to commit to action and following your path.

Will you get to the finish line of life with a smile on your face and a sense of fulfillment?

You may not get everything you wish for in life, but isn’t trying better than not trying?

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5 Things Experienced Investors Know About Surviving a Stock Market Crash



You have seen this movie before. And even if you are too young to remember you vividly remember your parent’s screams. Yes, the stock market is crashing and you are paralyzed with fear.

All that hard earned money you invested and puff, it’s all gone. Maybe not quite an Animal House “7 years down the drain” situation, but still a lot of it is gone. With it, there goes your worth as a human being.

It all happened in the blink of an eye. One minute you had visions of a life of riches — a red Ferrari, original artwork decorating the walls of your new penthouse apartment, and weekends shuttling between the Hamptons. and South Beach for a life of pure pleasure.

Waking up to a market mess really hurts. Reality bites! Not only do your dreams feel so far out of reach now, but what really upsets you is that you would have been better off spending all that money you invested on a fun trip to Vegas. Come to think of it, maybe Vegas would have been a better gamble!

Live and learn. That’s the last thing you want to hear, but you know that it is true. If you are going to invest you need to understand that stock market crashes are as inevitable as the New England Patriots making yet another Super Bowl.

I understand that you (like most of the country) may hate the Pats, but maybe the lesson is that experienced investors know something about surviving a stock market crash that you could really benefit from, but only if you are able to see through your fear.

“Everything you’ve ever wanted is on the other side of fear.”

– George Addair

Before you jump off the cliff keep these things in mind:

#1: It won’t always be so dark at 4 PM

Stock markets tend to go up over time. The average annual rate of return on the S&P 500 is 10% over the 1926–2018 period.

10% is a pretty good return that compounds year after year. Some years are much better and some are much worse.

The problem is never when things are going well. The problem is always when the stock market tanks and everybody assumes the end of the western world.

Your reptilian brain goes into an immediate red alert state. It assumes that nothing good can result from this stock market turmoil. It’s telling you to get out now!

The problem is that as sure as day follows night, history shows that stock markets recover from crashes to resume their upward growth.

That crash that was so feared at the time will likely look like a mere blip on the long-term historical price chart.

Crashes and corrections (smaller mini-crashes) make us feel terrible but are part of investing. Research from data provider Factset shows that historically the US stock market has had a correction of 10% or more in 55% of the years.

Experienced investors bear the scars of prior stock crashes. They also understand that while bad times are more frequent than anybody would like, these bad times do not last forever.

Experienced investors understand that markets are volatile but that over the long-run stocks are incredible wealth creation machines.

#2: You can’t score from the bench

Fleeing the markets at the first sign of distress does more harm than good. Stock markets are inherently volatile and you might as well get used to it if you call yourself an investor.

If you don’t put money at work in the stock market you can’t lose any money, right? Correct, but the flipside is that when stock markets go up you will be squirming in your Lazy Boy as all your friends hoot and holler about their stock portfolio gains.

Only by playing can you make a difference. Put money at work in the stock market and you will participate in the ups and downs of investing. The good news is that historically there have been many more ups than downs.

You can always play it safe and keep your money under your mattress but that safety is going to cost you manifold over the long-term.

Let’s play a little historical game. If you had invested $100 at the end of 1927 how much would you have at the end of 2018? $10,000, maybe? $25,000? Not even close!

If you invested in US stocks you would have $382,850. And that is after “surviving” several stock market crashes! Not bad, right?

But what if you were really cautious and stayed out of the game? Let’s say that you invested all $100 into US treasury bills. You know that unless the US government defaults you are getting your money back plus interest.

How much would you have at the end of 2018? Are you ready?

You would have a grand total of $2,063 according to the calculations of Dr. Aswath Damodaran at NYU.

Your caution has cost you dearly. Hot dogs or steak? Which one would you choose?

Experienced investors know that when things get really uncomfortable the only objective at the time is to stay in the game.

If you are not in the game, there is a zero percent chance of making up your losses and you surely will not participate in the good times.

The opportunity cost of not playing is high.

Photo by Joao Tzanno on Unsplash

#3: Nobody plays the perfect game anyway

When the s..t hits the fan (and it does for everybody) your first reaction might be to sell everything in disgust.

Apple, Proctor and Gamble, Netflix, Gamestop, those tiny speculative biotech’s that were going to make you rich — all sold with a vengeance. Good riddance. You are done with stock investing!

The problem with this approach is that you are likely “throwing out the baby with the bathwater”. You are letting your emotions run the show. You are not looking at the merits of the situation.

An experienced investor re-evaluates every holding based on their merit at that particular point in time. Sure, market conditions suck and losses are piling up. But remember these are only paper losses until you sell for real.

Maybe this stock market sell-off is pure panic and unrelated to economic fundamentals. Investors often behave like a herd of wimps all climbing over each other trying to be first to sell. An experienced investor will not panic and likely will watch the stampede from afar. Steady Eddie.

Other times something in the markets or economy has fundamentally changed and some of the stocks in the portfolio are no longer worth their original value.

What do you do?

Option A: Hope that the markets recover and then hope to find somebody that will take the stock off your hands?

Option B: Sell now because you guess things will get worse and your money could be best used somewhere else?

Option A is based on hope. Option B is based on research and the merits of the situation.

An experienced investor will not rely on hope. They will most likely face up to the fact that some of their stocks are no longer worth what they originally thought and that they need to sell.

Nobody likes to sell at a loss, but better to sell for 80 cents on the dollar than for 50 cents down the road. There is no shame in taking a loss if it furthers your cause in the long-term.

#4: Don’t listen to your gut when everybody else is throwing up

Fear is paralyzing. Fear leads to making poor decisions if left unchecked. But fear can also be used as a signal for taking conscious action.

You can use fear as the catalyst for triggering a course of action that, while difficult at the moment to execute, will bear fruit when everybody else is still lamenting their bad luck.

Experienced stock investors use the extreme fear of market investors as a wakeup call to pay attention.

If the mass hysteria is based on pure crowd psychology and not economic fundamentals, the wise know that money can be made at the expense of the fearful.

Planning ahead of time is crucial.

What can you do to take advantage of the fear of others?

  • Having enough cash on hand to fund the purchases — without cash, you can’t do anything. Borrowing to leverage during a period of stock market distress is not a reasonable or smart option. Just say No!
  • Having an idea beforehand what to buy from the weak hands. This is all about research. Focus on investments where even if you are a bit wrong in your assumptions of future growth and profitability there is a good chance of making money — Warren Buffet calls this his margin of safety. Buy the babies thrown out with the bath water!
  • Internal fortitude or “cojones” if you know what I mean. Departing from the herd mentality of doom and gloom is very difficult. Almost all inexperienced investors will flee at the first sign of trouble. Standing apart from the hysteria of the crowd takes belief and conviction.

Experienced investors understand that fear needs to be managed, not avoided.

Photo by Guilherme Stecanella on Unsplash

#5: When you are seasick focus on the horizon

Have patience. You never know how long markets will remain in a downtrend so be prepared for the long haul.

Most stock crashes and corrections are short-lived. If you knew that a correction or crash was about to happen you would bail in a hurry, right?

But the timing of when things fall apart is never known with any certainty. Many stock pundits have proclaimed an imminent collapse only to find themselves years later staring at a stock market twice as high as before. [Hard Fact — Nobody can time the next market crash]

Research by Factset shows that the average length of time from collapse to full recovery is 9 months after a 10% or more correction. That is not that long, but you would be surprised by how many inexperienced investors lack patience even if it means locking in a major loss.

In a sense, patience is a function of belief. Belief, in turn, should be informed by history and the context in which you are making decisions.

If you understand the history of stock market returns you would think twice about bailing when things get dicey in the short-term.

If you understand the history of global economic growth you would realize that business cycles — boom and bust periods — are part of our system of capitalism.

Experienced investors know exactly why they are investing in the stock market. You need to do the same.

What matters to you?

  • Growing your portfolio so that you can at some point in the future enjoy the things in life that make you happy?
  • Or, attaining immediate relief from the pressure that comes from stock investing and hiding under your comforter until everything becomes easy again.

“By re-educating the mind you can accept fear as simply a fact of life rather than a barrier to success”

Susan Jeffers

Photo by Andre Ouellet on Unsplash

It might be your first rodeo but you don’t need to stay down

Your fear is real. Nobody (except those braggy people with nothing at stake) likes a stock market crash.

You and your friends were enjoying the party and suddenly, swish, they turn the lights off and you can’t find your wallet or your dream date. How will your life ever be good again? No more Hamptons or South Beach.

Maybe all those people that have been whooping it up paycheck to paycheck had it right after all.

Fear is paralyzing. Everybody experiences the same thing. But only a few know what to do about it.

The fear when in a stock market crash is real but if you are able to overcome the signal that your nasty brain keeps sending to your sweaty palms, you are going to see daylight again and prosper.

Fight the fear knowing that experienced investors have found ways to survive market meltdowns. This might be your first rodeo, but they are still saddling up after many falls.

Go deep into your head. Remind your rational brain that things will get better and that everybody is going through the same negative emotions. Think clearly and if need be cut your losses, but whatever you do don’t beat yourself up.

Learning from the experience of others is a time-tested approach. This won’t be your last rodeo. Get up on the horse and next time around you will know how to conquer your fear. You may even profit from the fear of others.

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7 Regrets Happy Retirees Will Never Have

Photo by Lucian Andrei on Unsplash

Life can be full of regrets. When you are young you might regret not asking somebody out, or not trying out for the basketball team.

In middle age, you might regret not taking that overseas assignment that was offered to you, or buying that bigger house in the suburbs that might have pressured your finances but also provided a great place for your kids to grow up in.

Many regrets are forgotten with the passage of time. You move on to different things, your priorities change and you get busy. Your eye is always looking ahead.

Sure, once in a while you may become nostalgic and peak in the rearview mirror. You may think back about what might have happened if …. But as quickly as that thought pops in your head, life intervenes and you are on to the next thing.

Busy, busy, busy.

As long as you are in the flow of life and things keep moving you spend little time thinking about potential regrets. You are much more focused on what you need to do next and what it will take to climb that mountain.

But when things slow down or you experience a major life transition those old regrets parked deep in your memory have a way of showing up again in vivid color.

Transitions mark the ending of something significant in your life

Research has shown that one of the least talked about life transitions is that when you stop working fulltime and enter into what we typically characterize as retirement.

The transition into retirement is a difficult one for most people. Surveys show that after a brief honeymoon maybe lasting a year or two, many recent retirees enter a period of uncertainty and introspection.

Regret as to what could have been and should have been is common at this stage in life.

Some retirees manage to navigate through the fog while others linger behind in negativity. Regret is one of the strongest human emotions but it does not have to take up permanent residence in our lives.

Plenty of retirees have managed to overcome feelings of regret by proactively taking control of their lives and choosing positivity over brooding or ruminating over what could have been.

What are some of the roadblocks or behavior patterns that happy retirees have successfully overcome?

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#1 Compulsively checking the rear-view mirror while driving on a deserted highway

Having great memories of your career and raising a family is fantastic but living in the past when you might have 30+ years in retirement is a bit too much.

People that live in the past tend to be very risk averse and reluctant to try new things or experiences. They are always implicitly comparing the present with the past. Our memories are not always accurate and people with this mindset may be glorifying their past and holding too high of a standard to beat.

People that live in the past tend to prefer doing the same things over and over. For example, they often socialize with the same core group of people that they have known forever.

In contrast, happily retired people tend to seek new challenges and enjoy pushing their physical and mental boundaries. They also seek new social connections whether they are long lost friends or new relationships.

#2 Going to the Bellagio in Vegas and leaving it all up to chance

Living in the moment and living for short-term pleasure and enjoyment is occasionally fine.

Happily retired people allow themselves to live in the moment but only after planning the financial as well as non-financial aspects of their retirement. If their plans allow for the occasional splurging on a big trip or expenditure, no problem.

Spending time on passive activities such as gambling is also a big red flag. Not when done in moderation but not as a sport or when betting disproportionate amounts relative to one’s means.

Planning your life in retirement does not have to involve not having any fun or tracking every little expense. It does, however, require an idea of what you can spend and on what types of activities or pursuits.

Recovering from an unplanned big bash can be stressful if not catastrophic to your financial health.

Photo by Anoir Chafik on Unsplash

#3 Treating friends and family like the reusable Whole Foods bags in your trunk

Nobody lives forever. Relationships become if anything more precious as time becomes more finite.

Research also shows that as people age their circle of friends shrinks. Taking care of your existing relationships with friends and family becomes very important.

Equally important is staying receptive to new friendships and re-acquainting yourself with long-lost friends from your distant past.

You want quality over quantity in terms of your social connections.

Holding grudges toward friends or family is a recipe for regret. The more time that goes by the more space those regrets will take up in your head.

Maintaining a tight group of relationships as you age has been shown by the Harvard Study of Adult Development to be the most critical factor in explaining longevity as well as overall happiness.

#4 Loading up on “pico de gallo” as your vegetable portion for the day

It is easy to gain weight in the early days of retirement. Many people look forward to relaxation and adopt a sedentary lifestyle. Big breakfast, a bit of TV, lunch, nap and Happy hour at 4. All calorie enhancing!

If anything it is more important to take care of yourself as you age. Weight gain is associated with all kinds of health problems not to mention expending more energy to simply move around.

Happily retired people take great care of their physical and mental health by eating nutritious food, sleeping well, remaining physically active and pursuing challenging mental tasks such as learning new things.

The mind and body connection is well established by scientists. A healthy mindset coupled with healthy daily behaviors is important for optimizing your physical and mental health. Keeping a healthy weight is one of the keys to your health and happiness.

Photo by Rex Pickar on Unsplash

#5 Thinking like a lizard

Our primitive portion of our brain known is known as the reptilian brain. This part of the brain protects us from perceived threats. It assesses danger and reacts quickly through our reflexes, balance, breathing, and heartbeat.

The sole role of the reptilian brain is survival. Planning and rational thinking are not in its repertoire.

The problem is that many times our first instinctual response driven by the reptilian brain leads us astray in our modern world. We jump to conclusions without thinking rationally about the consequences or alternative courses of action.

Most of our daily behavior is unconscious, but many of our major decisions in life need to be thought over in a rational manner.

Finding space between emotion and action is a skill that high functioning people have mastered by identifying triggers, developing greater awareness, and deliberately choosing an appropriate behavior.

#6 Getting overly attached to your Lazy Boy recliner

Nothing against a good recliner. They are wonderful when watching a movie or a sporting event. They even look good these days and come in more colors than that old brown one in your basement growing up.

Occasional use is advised. Over-use is not. One of the main ways of managing the aging process is through exercise.

As Dr. Mark Williams illustrates in his book “The Art and Science of Aging Well” there need not be any major loss in overall body functioning as we age assuming that the individual pursues a reasonable program of cardio, strength and flexibility exercises.

Getting out of the Lazy Boy and exercising has great benefits for your physical health. The added bonus is the often forgotten benefits to your mental health. Exercise, for example, is one of the best ways to deal with stress.

#7 Using your TV as your alarm clock and mood meter in your house

Newly minted retirees often look forward to just relaxing and not having any demands on their time.

They want to do whatever comes to mind at the moment. The problem is that often times very little comes to mind and it becomes easy to just turn on the TV and wait for inspiration.

In surveys by the Bureau of Labor Statistics, the typical retire in the US spends 48 hours a week in front of their TV. Then you have internet browsing. Suddenly those 8 to 10 hours a day previously spent at work are now taken up by TV and the internet.

It’s not only the amount of time spent passively watching TV or on the internet but also the type of content being consumed. As they say in the computer world, “Garbage in, garbage out”.

But it is even worse as often times what you consume digitally has an effect on your mood. If you are watching a lot of news or financial shows you will probably start seeing problems all around you and your anxiety level will rise.

Happily retired people lead active lives. Replacing passive activities such as TV watching with getting out and experiencing life are great ways to get more juice out of your retirement years.

“When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us”

Alexander Graham Bell

Become your own Retirement Super Hero

Regrets are one of the most common emotions felt by people especially as they contemplate their own mortality.

We all have regrets living deep in our memories but not everybody lets regrets linger on and bring them down.

Happy retirees have successfully slain these self-made dragons. They have made peace with their past. They have taken action to resolve any lingering conflicts. Their daily behavior is consistent with their values.

Life is about taking action. You have the ability to influence the path you are on in your life regardless of how old you are or feel.

Learn from the behavior of people who have mastered the art of slaying past regrets.

Find your own retirement super-heroes. Maybe your superhero is somebody like Warren Buffet or Ruth Bader Ginsburg. Maybe it is somebody in your family. For me, it is my 90-year-old uncle that still travels the world on his own.

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Warning: Why Low-Cost ETF’s Won’t Protect You From Mr. Market

Photo by Aarón Blanco Tejedor on Unsplash

Market corrections are never fun. After a long period of uninterrupted stock market gains, Mr. Market finally decided last October to turn down with a vengeance.

From the peak in early October to late December Mr. Market (aka “the stock market”) was down about 20%. Since then the market has had a bit of a recovery and as of the second week in February it is down about 7.5% from the peak.

When you look at your Q4 brokerage statements all you feel is regret and shame. How could this have happened?

All your investments are in highly touted exchange traded funds (ETF’s) that track the stock market. Your buddy at Goldman told you so and you even read up on a couple of Morningstar reports.

You were counting on Mr. Market. Yet another scam but this time you are the sucker, not those poor sub-prime holders that took it on the chin during the 2008 Financial Crisis.

You weren’t trying to get rich overnight (maybe just a little) but who likes to throw 20% of your money away like that? Answer: Only a sucker!

Losing feels terrible. It’s not just about the money, but also that you were easy prey.

The only consolation is that you had lots of company.

Joining the winning team felt so good, but now you are no longer so sure

Everywhere you looked people were buying these ETF’s. You felt part of the tribe. And hopeful that finally, you had figured out this investment business.

Now you feel betrayed and frustrated. You thought that these ETF’s were safe.

Who cares that ETF’s have been the investment of choice since the end of the Financial Crisis. From 2008 to 2018 assets in ETF expanded more than 600%.

Wonderful, but how does that help you now?

You were barely familiar with this tribe except for some gibberish on CNBC and select subway ads you saw in passing, but you drank the cool aid anyway.

What are these ETF’s anyway?

Most ETF’s use a strategy called index investing. The strategy is super simple — replicating a portfolio or index of stocks or bonds designed by a third party such as the Standard & Poor’s company.

The best-known index in the US is the S&P 500. Two of the largest ETF’s replicating the S&P 500 index are SPY (offered by State Street) and IVV (offered by iShares).

Not only have ETF’s performed better than most mutual funds but they are substantially cheaper. Better performing and cheaper means more money in your pocket.

While the virtues of investing in this fashion have been known to large institutional investors for decades, the investment public at large was a little slower to catch on.

Global Focus Capital

It took a while to be discovered

It took the cult of personality in the form of Jack Bogle, the founder of the Vanguard Group, to make real people realize what they were missing out on.

Index investing for the masses took hold. Index investing in ETF’s became a religion. They called themselves the Bogleheads”.

The emergence of ETF’s allowed everyday people to participate directly in index investing. Bloomberg estimates that the US ETF market is $3.7 trillion in size and accounts for 40% of daily US trading.

ETF’s have democratized investing. What only very large pension funds could previously do is now at everybody’s fingertips.

Everybody can be a big boy now. Microcaps, emerging markets, dividend payers, low volatility stocks — all strategies previously unavailable or too costly now available to everybody at a click of a button.

You were eager to join the adults at the big table. You finally scrunched up some savings and took the plunge.

You bought several of the ETF’s recommended by your Goldman buddy. Now all you have to do is sit back and collect some coin, or so you thought.

Photo by Andrik Langfield on Unsplash

If ETF’s are so wonderful why do I feel so down?

Recent market events have left you wondering if maybe you were a bit hasty in choosing your investment tribe.

All you have seen since you bought your ETF’s is red in your accounts.

You do realize that the market has taken a tumble but weren’t your ETF’s rock solid and sure winners?

You feel like you are missing something.

Is there a secret that the investment gods are not sharing with you?

You ask your Goldman buddy what happened and you are met with a look of disbelief.

“Of course you can lose money if you are not invested the right way,” he says.

You are puzzled. “But I jotted down all the right ETF tickers on this cocktail napkin.”

Now your buddy looks at you with pity. “Dude, didn’t you first figure out your asset allocation?”

Asset, what?

“How much you own in stocks, bonds, and other stuff” he says.

“You can’t just let it rip on one thing — you need to be diversified”.

Always be thinking “AA”.

Nobody told you about this asset allocation or “AA” thing at least not in the context of investments!

“When the student is ready, the teacher will appear”

Old Tibetan Saying

Your lack of knowledge has cost you dearly. You barely knew what an ETF is and you still plunged into the deep end.

You were hosed on Day 1 and you didn’t even know it. The investment gods kept their asset allocation secret to themselves.

Photo by Mark Finn on Unsplash

What the Investment Gods didn’t tell you

As Warren Buffet has said before, “Investing is simple, but not easy”.

There are some simple truths to investing that even experienced portfolio managers need to be reminded off from time to time.

There is a link between return and risk:

The higher the return you seek the higher the expected risk of the investment. In terms of major asset classes, stocks tend to do better than bonds but with significantly higher risk.

Risk cuts both ways. During the good times you will make lots of money on your equity investments, but when Mr. Market takes a beating you’ll see lots of red in your accounts.

Key Lesson: The riskier the investment the more you can lose, know how much you are comfortable losing

Markets go up and down, sometimes violently:

That is what the pros call volatility. During normal times, prices move within a tight range. But when markets get nervous, volatility tends to spike up at the speed of light and even the savviest investor feels a pit in their stomach.

When markets go up being an investor is fun. Everybody is a genius on the way up. When markets go down many novice investors throw in the towel while the pros assess the situation for ways to cut risk and/or ways to profit from the panic of others.

Key Lesson: Volatility is part of investing, the worst time to sell is when you and others are panicking

Investment risk can never be eliminated but it can be transferred:

All asset classes — stocks, bonds, real estate, CD’s — carry risk. The risk emanates from the health of global economies and the preferences of investors as a group for postponing current consumption.

You as an individual can’t eliminate these top-down risks. You’re too small to do anything about it! Markets are composed of collections of individual investors all too small to eliminate risk on their own.

As a group, you are stuck with the risk. The only thing you can do is transfer the risks from one investor to another, but the size of the pie remains unchanged.

Key Lesson: There is always investment risk, but you can change how much risk you want to take

Most people focus on easy, not right (Hint: they are solving the wrong problem)

By focusing on what ETF’s to own you are disrespecting the investment gods. You are starting at the finish line and skipping all the hard work.

The truth is that you got it backward. You took the easy way out by casually asking your buddies for help. You skipped your homework and now you want to be an Academic All-star?

Here’s the thing.

  • The ETF’s you own matter a lot less than you think.
  • What matters is how much risk you are taking in your portfolio.

If you own all stock ETF’s, you are overwhelmingly taking equity risk. You and Mr. Market are fraternal twins.

When Mr. Market catches a cold, so do you. Nothing will save you from Mr. Market’s mood swings.

If you want to be like Mr. Market you are all set with your stock ETF’s. End of story. Learn to live with the rollercoaster.

But if you don’t like the moodiness of Mr. Market and see yourself as a more down to earth person you might want to dial it down a bit.

“Dial what down?” Your portfolio risk, of course. Or, in English how much you are willing to lose if Mr. Market catches a cold.

And for that to happen you need to include investments other than stocks into your portfolio. For example, lower risk bonds, CD’s, or real estate.

Got it little grasshopper?

Less risky investments like bonds mean you are less likely to lose money when Mr. Market sneezes.

This is the miracle of diversification sometimes called “the only free lunch in investing” by Nobel Prize winner Harry Markowitz.

Photo by William Warby on Unsplash

Think Big First, Then Small

Figuring out the asset allocation mix that suits you is the first step to take. It is also by far the most important one.

Always be thinking “AA”.

Large institutional investors have known this for a long time. At least since the 1990’s when a variety of academic studies showed that asset allocation accounts for over 80% of portfolio returns.

Isn’t it better to start with the 80% that counts?

Picking ETF’s may be more fun, but are you into fun or into making some dough?

Work on your big problem first by figuring out your asset allocation. Only then figure out what ETF’s you might want to use. Make sure you do it in this sequence.

The whole process of deciding what proportion of your portfolio should be in stocks, bonds, CD’s and other investments is called asset allocation or,(“AA for short).

It starts with figuring how much risk you are willing to tolerate.

How much risk you will tolerate in your portfolio should be your starting point, not getting a list of ETF’s from your buddy at Goldman.

You really should consider AA if you want to stay sane

Just know that whatever you do, picking the right stock ETF’s won’t help in the event of a correction. You will still be at the mercy of Mr. Market like everybody else!

What will help you smooth out Mr. Market’s mood swings will be holding a diversified portfolio of stocks along with less risky investments such as bonds, CD’s and real estate.

This may all sound a bit technical and complicated but you don’t t have to do this alone. Here are some options for you:

  • Buy a pre-packaged asset allocation strategy. If you want to take only a little bit of risk consider AOK. For a little more risk AOM might be right for you. And if you are ok being aggressive consider using AOA.
  • Invest your money with a robo-advisor such as Betterment or Wealthfront. Based on a short questionnaire these firms will suggest and manage a suitable asset allocation strategy for you.
  • Hire a registered investment advisor to fully customize a portfolio for you based on a comprehensive assessment of your needs and risk profile.
  • Do it yourself by first figuring out your desired asset allocation and then picking appropriate ETF’s or other investments to get exposure to the various asset classes in your portfolio.

It is time to get serious about your money.

Even small differences in return can compound to very large amounts over the long term.

Hot dogs versus steak — which would you rather have for dinner?

Having a solid asset allocation strategy in place is a great first step toward fulfilling your financial goals while allowing the moodiness of Mr. Market not to keep you wide awake at night.

Always be thinking “AA”!

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5 Simple Life Rules to Grease Your Retirement


Retirement can be viewed as a blessing or a curse depending on how you prepare yourself for this new phase in life.

It is common for people to emphasize the financial side of retirement. They’ll focus on putting money aside in their 401(k)’s. They will start reading all the literature on creating an income in retirement. Some will even start watching Mad Money in the hope of picking up some useful investing tips.

Still others will feel a bit overwhelmed and seek the advice of a professional retirement advisor. The advisor will most likely deliver a nice looking report with all kinds of tables and charts describing the probability of outliving your assets (hopefully this is low), the right time to collect Social Security, how to minimize your lifetime taxes, a pro-forma budget of your expenses in retirement and so on.

All very official and beautifully presented. But as Mike Tyson says “everybody has a plan until they punched in the mouth”. That punch for most people is called life.

Don’t get me wrong — planning your financial life in retirement is absolutely essential but many people have the wrong impression that having the “plan” is enough and all that is required.

The reality is that financial security is an absolutely key component of your Retirement Wealth but there are so many others aspects to your life that need planning and taking care of.

Let’s get down to the 5 life rules:

Rule 1: Decide what you want and what matters to you

Getting clarity on what you want in life and what really matters to you is no easy task. For most of your life, you have defaulted to societal norms.

Study the hard sciences and you will have a high paying job for life. Buy your first house by the time you are 30. Sacrifice your personal life and health for the good of the company by putting in 60+ work weeks and playing office politics. Bear and grin if you have to.

But now that you no longer have a boss or corporate identity, who are you and what do you want out of life? Now that you can at least contemplate life’s finishing line what values do you want to be remembered for? Are you still defaulting to the last 30 years?

Many people will live almost as many years in retirement as they did during their careers. That is a long time to live without a guiding light. Finding your purpose and what really matters to you will serve you well during the good times but especially when you face adversity.

  • What is fulfilling and meaningful to you?
  • What do you want people to say about you in your obituary?
  • What life lessons do you want to pass on to your loved ones?
  • Have you thought as to why whatever you see in your future is important to you?


Rule 2: Maintain balance in your life

A fulfilling retirement is not solely driven by how much money you have in the bank. Having enough financial resources to live the way you want is important but the quality of your years in retirement is heavily influenced by how you spend your time and with whom.

Having lots of money to spend but few interests or friends to spend time with will not create a fulfilling retirement. As my mother used to say, the key to everything is a balance.

In this context, balance refers to all elements of your Retirement Wealth — physical and mental health, financial security, social and family connections, work/hobbies, and lifestyle.

You can’t have a fulfilling life unless all aspects of your Retirement Wealth are in sync. There will be areas where you are weaker that will demand your attention. Maybe there is an unresolved family conflict that needs to be taken care off. Maybe you need to start an exercise program and eat better. Maybe you just need to make more time sharing an interest with your spouse or partner.

The key is taking action today. Don’t postpone something in the hopes of finding the right time to get started. Start now, start small and keep moving forward.

  • Do you feel good about all areas of your life?
  • Are you leading a life of no regrets and peace of mind?
  • Are your family and social connections in good shape?
  • Are you doing everything in your control to remain physically and mentally active?

Rule 3: Design your environment to support your goals

The environment around you plays a huge role in enabling you to lead the life you want in congruence with your values. Research in the field of psychology has found that our environment is critical in influencing how we behave.

Surround yourself with positive people and it will rub off on you. Surround yourself with people that like to rehash everything and it is highly likely that you will avoid taking much concrete action on anything material.

If you move to a community where the only time that people socialize is at Happy Hour and you value a healthy lifestyle you will likely suffer some internal conflict.

Humans like to fit in. Fighting against your environment makes you stick out like a sore thumb. You either fight your environment or accept it.

You will have to resort to willpower to overcome the pull of your environment. But as research by psychologist Ben Hardy has shown the environment usually wins out. Your willpower is finite and eventually, most people will succumb to the rules of their environment.

The only way to lead the life you want is to design your environment to be congruent with the life you want to lead. The pull of your environment is too strong to overcome by willpower alone.

Your best chance is to create an environment that supports your desired way of living. Start with the obvious — your social network, your physical surroundings and other influences around you.

  • Are the people you surround yourself with supportive of your goals and values?
  • Are your physical surroundings set up to reinforce the type of behaviors that are required to accomplish your goals?
  • Are you feeding your brain useful information conducive to creating a positive environment or are you mindlessly consuming news porn?

“If you do not create and control your environment, your environment creates and controls you”

– Dr. Marshall Goldsmith

Rule 4: Remain flexible and adaptable

Benjamin Franklin once said, “in this world nothing is certain but death and taxes”. I think that it is safe to add a third — change.

Change is happening at an increasing pace in our society.

We see technologies come and go.

We see new companies being formed and reaching mega-cap status within less than a decade such as Airbnb and Uber.

We see new norms of behavior change overnight such as the rise of social media as a substitute for in personal relationships.

The world around us is moving faster and faster. We are every day presented with more choices. More choices can leave us at times confused and bewildered as Barry Schwartz points out in his popular book The Paradox of Choice.

The pace of change will if anything continue accelerating. Hoping to keep up with every single new development and technology is humanly impossible.

What you can do is to remain flexible and adaptable. As Charles Darwin stated, “it’s not the smartest or strongest that survive, but the most adaptable to change”.

We all like to think that success happens in a straight line. In reality, life is a zigzag of ups and downs.

Developing mental flexibility and adapting to the change is a necessary skill for thriving in a world where the pace of change is accelerating.

“When you can’t control what is happening challenge yourself to control the way you respond to what’s happening. That’s where your power is!”

– Twisted Angel

Adopt as author Carol Dweck would say a Growth Mindset where you believe in your own ability to learn under new conditions. Your thoughts and actions are malleable allowing you to adjust to changing circumstances.

  • In the past how have you reacted to change in your life — by hoping it would revert back to normal or accepting that things had changed and adapting
  • Are you paralyzed by past failures or do you look at them as learning opportunities?
  • Do you like taking on new challenges or do you prefer to stick to known situations?
  • Do you believe that you will have to work hard to reach your goals, or that your talents are enough?


Rule 5: Take action and don’t waste time

Time flies as the saying goes. One minute you are graduating from high school, the next you are starting your first real job, getting married, having kids and then fast forward to the time when you actually start thinking about retirement and yet another phase in life.

And it all goes faster and faster and you start wondering where time has gone.

You realize, time does not expand, it only shrinks. Every day the only certainty is that you are a day closer to your last one.

No longer can you afford to sit back, moan about what should and could have happened, and endlessly wait for that moment of inspiration or luck to propel you to the life you always dreamt of.

“One thing that can’t be recycled is wasted time. Lost time is never found again”

– Unknown author

All of a sudden you realize that time has become your enemy whereas before you thought of it as a friend.

As Marshall Goldsmith says in his book Triggers, “we are better planners than doers”. Without action, nothing will change and our dreams and goals for our retirement years will remain unfulfilled.

  • Are you waiting for an external signal or event that now is the time to take your first step?
  • Are you filling your day with mindless activities that don’t get you closer to your retirement dreams and goals?
  • Are you reluctant to start a new project or activity because you feel you need a large chunk of time?
  • Do you feel like you are always doing research and planning, or are you willing to figure it out as you go?

The best time to plant a tree was 20 years ago. The next best time is today.

– Old Chinese Proverb

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If you are looking for additional perspectives to guide you in formulating your next phase of life check out our Retirement Wealth Checklist.

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5 Reasons Why People Hate Thinking about Retirement


Over 10,000 Baby Boomers are reaching retirement age every single day in the US. This will go on every day over the next 12 years. Not all of them will officially retire but in most cases, as workers reach the magical age of 65 the clock is ticking.

This is not only happening in the US but across the western world as an increasing proportion of people are in the 65+ age bracket.

Many surveys show how unprepared current day retirees are not only financially but also emotionally.

According to a recent Vanguard study, the average 401(K) balance for people in the 55–64 age group is $178,000. That is not a lot to distribute over a lifespan that may last another 30+ years. Even worse, it is reported that a full 45% of Baby Boomers have zero savings.

Surveys also show that many people enjoy a brief honeymoon when they first retire but that after a couple of years they express disillusionment and lack of direction. According to a 2017 Rand Corporation study, a full 40% of retirees go back to some sort of work within the first couple of years after retirement.

Interestingly the reason most often cited for going back to work had little to do with finances. Some retirees obviously needed the money to fund their lifestyle but the vast majority said that going back to work restored in them a sense of purpose and social engagement. Using their brain was another often cited reason.

The transition into retirement seems to be a hurdle troubling many people these days.

For one, the data shows that many people actually are forced to retire before they had planned to do so. A recent study by Voya Financial found that 60% of retired workers were forced to leave the workforce before they had planned to due primarily to health concerns and company restructurings. These early retirees might have been anticipating their retirement but life threw a monkey wrench into their plans.

Another contingent of retirees reaches their target finish line but they have been so busy with their careers or distracted as to not pay much attention to what their next phase in life might entail.

They are like sprinters putting everything into reaching the finish line but unprepared for what is next. In fact, many of the people interviewed in the Rand Corporation survey indicated that they needed one or two years of being away from the daily grind of a career to decompress and be able to see straight.


Why do so many people hate thinking about retirement?

While the exact timing of when a person retires may be somewhat uncertain due to outside forces we all know that the day will eventually come. Why don’t people plan ahead if they know that the transition is coming? It would seem to make sense, but maybe there is something more to it!

1. They are in denial and don’t think that retiring will be a big deal

They keep going as usual and expect to stop on a dime. Besides no longer going into the office what would change? The house is the same, the spouse is the same and the kids are the same. Just keep going as normal.

The only problem with these assumptions is that while some things like the house, spouse and kids do stay the same a lot of other things will change. How you spend your days certainly will. Some changes will be invariably positive like not having a commute. Other changes like the loss of identity, paycheck and social connections are also difficult for most people to handle.

Retirement is a big change for most people. It represents the ending of a phase of your life where you probably spent 30 to 40 years. Like all endings, there is usually a period of mourning or at the very least uncertainty as to what is next.

Is this you? Planning ahead can alleviate a lot of the tumult of not knowing what is next. Retirement is the tenth most stressful life event according to the Holmes and Rahe Stress Scale. Wouldn’t you want to keep this stress at no higher than №10?

“If you fail to plan, you are planning to fail”

Benjamin Franklin

2. They know retirement is a huge transition but they don’t deal well with change

Fear of the unknown is what often holds us back from dealing with change. What if we make the wrong decision? How do we even start making decisions about something like retirement that we have never gone through before? The result is often procrastination.

Throughout our lives, we go through many transitions. From the time we are born we go through change. Some transitions are tougher than others and take more time.

According to William Baldwin in his book Change all transitions involve the realization of an ending, a period of time in between involving introspection and uncertainty (the neutral zone) and finally a new beginning.

Sometimes change happens due to external factors and sometimes change is due to what is going on within you. In the case of retirement, you have both types of change — our work is ending and at the same time our sense of identity and how we fit in the world is changing as well. Our social and family relationships are also evolving further complicating our transition into retirement.

It is easy to hope for the best and procrastinate thinking about your life in retirement.

Is this you? Change is going to happen to you whether you like it or not. Transitioning into retirement is a big change for most people. You can’t control everything but planning your life in retirement both from a financial as well as non-financial perspective will empower you and your spouse/partner.

You are in charge of designing the life you want in retirement. Unexpected events will happen and even the best-conceived plans will need to be adjusted.

Developing a growth mindset as well as a resilient attitude will be important to deal with change for the rest of your life. Why not start now?


3. They fear the loss of identity and nothing scares them more

Fear has a way of freezing people up. So many people identify with the job they do. It’s Joe the CPA, or Linda the software engineer. When you retire it is hard to identify with your previous job any longer.

Suddenly, your Linkedin profile reads “Retired”. It almost sounds like you have disappeared from society and without the cover of a job title useful to the world.

Identifying with a job brought on a certain response from people. If you identified as an engineer you were good with numbers and smart. If you identified with being a designer you were creative and outgoing.

Now you are just Bob or Jane. But who are you really? What descriptive shortcut are you going to offer people you meet for the first time?

Is this you? Retiring involves a loss of identity that must be restored to reflect the real you. Finding the real you may take time and introspection. Retirement is the perfect time to define without pretense who you are.

Your life experience makes you relevant and your contributions to your family and society do not stop when you retire. What are your core values and is your behavior consistent with these values?

4. They have ignored their finances and hope has become their only way out

Money is a key ingredient of your retirement wealth. So are your physical and mental health, social connections, your lifestyle and your work and passions. But money is required to lead a certain type of life.

When you have a steady paycheck you can hide a lot of bad habits. Who needs a budget as long as the checking account is in positive territory?

Without a paycheck, you must be more careful with your money. You now must budget your money and be smart about how you invest your savings. Unless you have a pension to count on besides Social Security and other forms of pension welfare your lifestyle will now have to be funded by your savings.

If you have that sneaky suspicion that your financial house is not in order you might decide to simply ignore reality. Pretending is better than facing the truth. Many people hope for the best and keep their fingers crossed.

Financial brokers often tout a “number” required to retire. The “number” is usually in the millions. And you know that you are nowhere close to that “number”. You need to run an 8-minute mile but your best time is north of 10 minutes. You give up trying as the end goal seems too far away.

Is this you? First, know that your “number” may not be the same as somebody else’s “number”. Maybe you have always led a frugal lifestyle and with your social security benefits, you only need to use a small percentage of your savings to lead the life you have envisioned in retirement.

Second, even if you feel that you are behind financially, starting today is always a better option than postponing the inevitable.

Why not admit that you need help and make an appointment today with a wealth manager specialized in retirement planning?

5. They get easily overwhelmed with the complexity

Retirement planning can be complex. The financial side of preparing for retirement can be hugely complicated and overwhelming to lots of people. Throw in there the emotional side of retirement and things really get jumbled up.

When you retire you are dealing with a lot of change. Your relationships are changing, the source of your income is changing, your identity is in question, and there is no longer an HR department that figures out your benefits package. On top of that, you are now responsible for filling that time slot previously allotted to your job. You may feel a bit lost and chances are your spouse/partner is feeling the same.

You also have to figure out how to draw down your savings and manage your investments so they last the rest of your life and keep up with inflation. Don’t forget about the need to decide the best time to take social security benefits (age 62, 67 or 70) and get all those legal documents (will, health care directive, estate plan) in order. And figuring out Medicare and its various supplements is not for the faint of heart.

Retirement a la Carte sounds great in principle but as the book The Paradox of Choice shows too many choices can easily overwhelm us, leave us stressed and regretful. Isn’t retirement the time to relax and take it easy?

Is this you? Feeling overwhelmed and stressed? Not sure what to do or even where to begin? In an ideal world, you would start thinking about retirement at least five years before your target date. Are you over this mark? It’s never too late but professional assistance may be necessary.

For most people, the goal should not be to become a retirement expert.

Instead, the goal should be to become an educated consumer of retirement planning services. Let a professional retirement advisor simplify your choices and lead you in the right direction.

If the source of your stress is mainly financial consult with a wealth manager specialized in retirement planning.

If your source of stress is primarily non-financial consult a retirement or life coach that can help you design a vision of your retirement consistent with your goals, motivations, and values.

There is no better time than now to plan the rest of your life. Will waiting to ask for help buy you more time?

The best time to plant a tree was 20 years ago. The next best time is today.

– Old Chinese Proverb

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If you are looking for additional perspectives to guide you as you formulate your vision check out our Retirement Wealth Checklist.

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Stop Procrastinating — start being P.R.O.A.C.T.I.V.E about your Retirement


Baby Boomers are retiring in droves these days. Many of them are unprepared to deal with this new phase in life.

As with anything in life things don’t happen overnight. You don’t suddenly become financially literate at the age of 60 or 65. A successful retirement requires lots of preparation — financial as well as non-financial.

It is never too late to start thinking about this next phase in life, but the longer our runway the better. Where do you want to be in 2020?

In working with clients, we use our P.R.O.A.C.T.I.V.E methodology to get the process going. Is this some fancy algorithm? Not at all. It is more of a tool to get people from the planning to the doing phase.


Personal:

A good plan is customized to your needs and requirements but it starts with an overview of who you are — age, career stage, marital status, children, health and family structure. What is your lifestyle and what type of lifestyle do you want in the future?

What are your big dreams and aspirations, interests and hobbies? How in sync are you with your spouse/partner? How do you want to spend your time in retirement? How do you feel about life in general?

Risk Profile:

Everybody feels differently about life’s uncertainties. In terms of your financial situation, how much investment risk can you afford to take given your short-term cash flow needs? How much wealth do you have relative to your financial commitments?

Are you comfortable taking more risk in order to make more money, or are you content where you are financially and don’t want to push your luck? If a shortfall were to occur would you be able to recover? Do you have time to recover?

Objectives:

What are your minimum financial objectives meaning what does your bare minimum lifestyle look like? In terms of discretionary goals, what other things are you looking forward to? Maybe a second home in Tulum or Sarasota to enjoy the winters, paying for your grandchildren’s college, helping your down on her luck younger sister, or buying a boat to tour the Caribbean?

Beyond your own personal goals, do you and your spouse/partner have any financial goals related to some special causes that you feel especially drawn to? Do you have a desire to leave a financial legacy to your heirs?


Assets:

Your assets are what allow you to bridge the gap between your sources of income and your ongoing expenses. The difference needs to come from either selling some of your assets or having your assets yield a rate of return that is sufficient to close the gap.

Understanding what you own and how much each item is really worth is the first step. As we mentioned before you must take into account the net value after you pay relevant taxes and transaction fees. You should include the value of assets that you do not plan on selling such as maybe your primary home. The goal is to get a realistic assessment of what you own.

Of equal importance is tallying up how much you owe — mortgages, car loans, credit cards, etc. Include any long-term financial commitments that you have made.

Hopefully, by the time you retire your debt is minimal in relation to your assets. The difference between your assets and your financial commitments or debt is your net worth. Your net worth is what allows you use of your resources to generate an income in retirement.

Cash Flow:

The sum of all your sources of recurring income minus your expected expenditures is your cash flow. Sources of income could include pension payments, social security, and if you still work, wages. In terms of expenditures, it is useful to separate them into essential and discretionary. It is also useful to anticipate expenditures that may not happen on a recurring basis but that you anticipate making in the near term.

Managing your cash flow is probably the biggest challenge in retirement. The loss of a steady paycheck to make up for any temporary unexpected expenses (your car needs a new engine or your furnace just blew up) is a significant blow. Having enough assets can make up for any shortfall as can a “replacement” paycheck from a new venture that you might have started after you left your primary career.

Taxes and Tradeoffs:

Taxes never go away even after you stop receiving a paycheck. Often times you can pay taxes now or later and you have legal choices as to the timing. For example in the US, you could take your Traditional IRA and convert it to a Roth IRA by paying taxes now. Or you could simply continue with your Traditional IRA and when you take distributions you pay taxes on what you take out.

A lot of people believe that you no longer need to pay taxes once you retire. The truth is quite different and it depends on where you reside. In the US, for example, some states tax Social Security benefits and others don’t. In some states such as Florida, Washington, and Texas there is no state income tax. A safe assumption is that you still need to pay taxes on many of your sources of income in retirement as well as when you sell some of your assets. For wealthy individuals, you also need to think about estate taxes.

In many cases, taxes can be deferred or postponed for a period of time. What you can do is legally manage when you pay your taxes by taking advantage of where your “retirement” paycheck is drawn from. You can also optimally match up sources of gains with losses to minimize your overall lifetime tax bill.

Tradeoffs refer to the often conflicting goals that we all have between consumption today versus later. We all have multiple goals that at times compete with each other. Couples/partners often have conflicting goals and different priorities in life. Other times, a couple may agree on their overall goals but not on what they individually deem as most important.

Establishing a rough understanding as what tradeoffs you are making is important in terms of arriving at a retirement income plan that is acceptable to all people involved.


Implementation:

A plan is only as good as what you do with it. If your plan calls for a conservative investing style and your portfolio is still reflective of your high paying career then no amount of planning will be adequate if capital markets go through a correction. Similarly, if the optimal strategy was to convert a Traditional IRA to a Roth structure and you ignored this advice in the long-term it is highly likely that your overall tax bill will be higher.

Your retirement income plan is not static. Either you need to manage it or you need to outsource responsibility to a trusted financial advisor. Your circumstances will invariably change over time. Your cash flow will change, you will have unexpected needs that come up and capital markets will certainly fluctuate over time.

In some cases, things will move in your favor as when you sell your second home in a rapidly appreciating real estate market or when your stock portfolio experienced much higher than normal returns. Maybe given this stroke of good luck you and your spouse/partner decide to splurge a bit and spend some of the windfall on a long trip to Italy or Bali.

Other times, the cookie crumbles the other way and you are suddenly facing a tougher situation. What if you were anticipating selling an investment property and use some of the proceeds to fund your living expenses for the next year, but the market has suddenly dried up? Now you have to figure out what other assets to tap and to do so in a tax-friendly way.

Another key implementation decision if you live in the US is when to take social security benefits. Your life circumstances may have changed and your previous plan of drawing benefits at age 62 may no longer be optimal.

Value Creation:

For most people, it is important to keep their money working for them. The strategies and tactics used to grow your capital should be based on time-tested concepts and practices but unfortunately, capital market conditions fluctuate over time.

There is, unfortunately, no investment strategy that works across all market conditions and market cycles. For example, deriving investment income is often a top priority of retirees, but figuring out where in the markets one can efficiently capture yield can change drastically. Sometimes CD’s are the best place, other times it is REITS, and sometimes it is plain old US Treasuries.

Yet another way to create value is to take advantage of temporary dislocations in the markets. For example, when equity investors as a group get nervous they tend to sell indiscriminately sell their portfolio holdings. Maybe they are throwing out the baby with the bathwater and some hidden gems can be picked up by investors willing to dig a bit deeper into understanding the specific fundamentals of the situation.

Another avenue for value creation is tax optimization. Offsetting winning investment positions with losing positions occurring in the same calendar year is usually a good way to minimize your overall tax burden. A systematic program of harvesting winners and losers has the potential of leaving more money in your pocket.

Earnings Growth:

When people retire the biggest loss financially is no longer having a steady paycheck. You go from accumulating assets to having to use those assets to partially fund your lifestyle. Some people have a defined benefit plan or rely on other sources of income such as Social Security Benefits but in most cases, there is still a gap between what you are bringing in and what is going out in the form of living expenses.

The gap is what needs to be funded from either asset sales or preferably investment returns derived from your portfolio of financial assets. The portion of the gap coming from investment returns is what people frequently refer to as your ”retirement paycheck”. The task at hand is to make sure that this retirement paycheck keeps coming over time and the paycheck adjusts to the inevitable rise in the cost of living.

Becoming too cautious in retirement and not asking your money to work for you (i.e., invest wisely) results in a loss in purchasing power not initially felt in the short term but seriously detrimental to your financial security in the long-run. Inflation is like paying interest on a loan you did not take out. The goal at a minimum should be for all retirees to grow their “retirement paycheck” at more than the rate of inflation.

The best time to plant a tree was 20 years ago. The next best time is today.

– Old Chinese Proverb

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If you are looking for additional perspectives to guide you as you formulate your vision check out our Retirement Wealth Checklist.

__________________________________________________________________

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Personal Growth Isn’t Just for Millennials — Baby Boomers Take Notice


The personal growth or self-improvement industry is primarily targeted at younger people and many Baby Boomers feel that the advice offered does not apply to them.

All this talk about following your dreams, quit your job today, get your side hustle going, become a digital nomad, find your purpose and so on is often lost in translation.

Nice to know and fun to read, but what does this have to do with me? I just need to maximize my 401k!

Baby Boomers are at a different stage in life and their focus is on other things — desperately hanging on to that corporate job, figuring out when to call it quits, how to save the most for retirement, keeping their health care, possibly moving to a warmer location such as Florida or Arizona.

People think that Baby Boomers are so different from Millennials or Gen X. What lessons from the self-improvement world could possibly apply to such a different stage in life?

As a Baby Boomer myself who has occasionally been dismissive of what felt like hocus-pocus advice from self-improvement gurus half my age I have become convinced that continuous personal growth is the way to live an active and fulfilling life.

The personal growth industry has much to offer Baby Boomers as they enter or contemplate retirement.

Baby Boomers are no different from Millennials or Gen X or any other generation for that matter. Our problems come in different flavors and how we grew up is certainly different (anybody remembers slide rulers and rotary phones?) but what we search for in life is not.


I just re-read Viktor Frankl’s Man’s Search for Meaning best-seller book written while Frankl was a prisoner of war in Nazi Germany. According to a survey by the Library of Congress, the book is considered one of the ten most influential books ever sold in the US and has been translated into over 24 languages.

Frankl passed away in 1997 but the book continues selling well today. Its message is timeless and enduring — life is a quest for meaning. The message applies whether you are young or old, tall or short, married with kids or not, poor or rich.

For the meaning of life differs from man to man, from day to day and from hour to hour. What matters, therefore, is not the meaning of life in general but rather the specific meaning of a person’s life at a given moment

Viktor Frankl

Real personal growth is at the end of the day a search for meaning.

What do you really care about? What are your core beliefs? What are you willing to sacrifice for? What is your “Why” that allows you to overcome seemingly insurmountable challenges and disappointments?

Nobody is born perfect or with all the answers. Instead, we must all grow into our own skin so to speak to lead a meaningful life. Personal growth does not ever end — it continues for life.


Every generation thinks that they are unique.

The specific problems they face are no doubt heavily influenced by the context or environment in which life is taking place, but the “big” questions in life of purpose and meaning are universal and timeless.

The whole transition into retirement that many Baby Boomers are facing today is fraught with fear of the unknown, but so is starting that first job after college, buying your first home or having children.

Are the concerns of Baby Boomers and Millennials that different? The specifics and context may be different but at the end of the day, our biggest struggle regardless of age most often happens between our own two ears.

Baby Boomers and Millennials are chronologically at different stages in their lives, but that does not mean that we live in different worlds. You may not hold Maslow’s hierarchy of needs as an exact description of how you look at life but the concept still generally applies regardless of age.

Everybody has needs and desires — these don’t just vanish with age. For most people, the bottom layers of Maslow’s pyramid have been long been satisfied. Instead in modern society the focus is on the quality of our lives and fulfilling our potential.


We all strive regardless of age and economic status to lead meaningful and fulfilled lives.

Self-actualization is the desire to become more and more what one is, to become everything that one is capable of becoming

– Abraham Maslow

Not surprisingly, a huge swath of the self-improvement industry focuses on self-actualization. Maximizing one’s potential, reaching for the stars, pursuing your dreams, following your destiny.

Dismissing the self-improvement industry as hokey pokey or too “new age” is a mistake made by many people of my generation.

Retirement is the ideal time to grow not to retreat into a protective shell.

As Baby Boomers retire from their long-held careers, the search for self-actualization in the form of meaning and purpose only becomes more important. We are no longer burdened by career and raising a family. We own our time, but we also own how we spend it.

Finding that new post-career identity that reflects the real you and recalibrating one’s sense of purpose and mission is not always easy.

Surveys show that it is not uncommon for many recent retirees to first experience a honeymoon effect but that the effect wears off after a couple of years and uncertainty sets in.

A lot of people enter retirement without a life plan. They may have saved diligently and even worked with a professional advisor to device a financial strategy full of bells and whistles. But they have all too often ignored to search deep within to find meaning and purpose. They have focused on the mechanics of retirement but not the emotions and possibilities for personal growth and fulfillment.

Retirees often mention that time seems to be moving faster and faster. They feel time slipping away. Maybe that is because they don’t know what to do with their time.

You can fool yourself, you know.

You’d think it’s impossible, but it turns out it’s the easiest thing of all

Jodi Picoult, famous novelist

Change is always happening. Some of the change around us is predictable and requires small incremental adjustments. Other times change is unexpected and requires major adjustments or an entirely new game plan.

And sometimes change is within us — what we value most, how we see ourselves within the grand scheme of life, our intended behaviors and how we want to be eventually remembered.

We are not born with a static personality. Retiring from one’s day job is the end of a phase of life but also the beginning of a period of huge freedom and learning if we choose to pursue a growth mindset.

Transitions can be hard but your’s does not have to be if you choose growth and adaptability over the fear of the unknown. The key is having a growth mindset.


So, where should Baby Boomers start to explore personal growth ideas?

The task may seem daunting given the proliferation of material, but here is a list of influential self-improvement gurus and experts.

Go to their blogs, read their books, find out who resonates given your own journey and belief system. I am not sure that anybody has all the answers and frankly I find that the ideas and concepts tend to converge to a small number of basic principles.

The key is taking small steps. Focusing intently on where you want to be instead of where you are now often leads to unfulfilled change. Take small steps. These small steps will amount to large change over time.


If you want some concrete suggestions, here are 3 books to read, 3 shorter blogs and, if you are a visual learner here are 3 videos to get you started. Time to adopt a growth mindset and truly enjoy your retirement years.


Here are 3 books to read:

The Compound Effect by Darrin Hardy

Wonderful, short book that gives you the fundamentals of success in a no-BS way. Small actions done consistently amount to large gains. Very actionable. Read multiple times until it really sinks in.

The Charge by Brendon Burchard

In this book, Burchard talks about the ten drives that make you human and how to activate them to lead a more engaged and fulfilled life. For each drive he offers tips on how to trigger these drives to eventually lead to higher energy, engagement, and enthusiasm. Provides useful worksheets to get you thinking.

Essentialism –The Disciplined Pursuit of Less by Greg McKeown

An absolutely fantastic book that applies to everybody. The idea is that most of the time we focus on activities that don’t matter. Busyness is not the same as being effective. In this book, you can learn that it is ok to shed non-core activities. Focusing on only important matters (to you) allows you to more clearly focus and move toward your goals. The rest does not matter.

3 Blogs to get You Going while you wait for Amazon to deliver your books:

Unsuccessful People Focus On “The Gap.” Here’s What Successful People Focus On by Ben Hardy

The idea explored in this note is to focus on improvement as opposed to reaching the ideal. The ideal or goal often appears unreachable and people lose momentum as their progress does not seem to be getting any closer. Focusing on small achievements is much more likely to result in sticking with the goal

Tim Ferriss’s 7-Step Checklist for Overcoming Fear — Entrepreneur Magazine

This article goes over the approach that Tim Ferris uses to deal with fear. He explains how he seeks to quantify the likelihood and magnitude of his fears and by doing so he “sizes” up the problem. Walking through his 7 item checklist allows him to slow down. He often realizes that even if the worst outcome were to occur he would be fine. We all deal with fear — going through the Ferris approach is one of the best ways I have found to get rid of the conversations in my head.

10 Life Purpose Tips to Help You Find Your Passion by Jack Canfield

Everybody wants fulfillment but it takes thought and action to figure out what really matters to you. It is very easy to walk through life following the norm and expectations set by society. For some people that might be fine but for many following the path less traveled is an approach more consistent with who they are. Following these 10 tips will get you closer to finding out what truly matters to you.

3 Videos to watch now:

7 Habits of Highly Effective People: 80th Birthday by Steven Covey

Covey is one of the best ever motivational writers. In this video, Covey imagines what his 80th birthday party would be like. If you do the same would it lead you to live differently? So much in life is about social connections. Who would be at your party?

The Most Important Lesson from 83,000 Brain Scan by Daniel Amen

Knowledge of the brain has expanded exponentially in the last 25 years. Dr. Amen walks you through the latest research. Staying healthy in retirement is a huge priority for most retirees. Understanding how the brain works and ways to remain “brain healthy” are a core competency of your future life.

How to Control Your Mind by Toni Robbins

Toni Robbins is today probably the best known motivational speaker. He is a Baby Boomer himself. His message can sometimes be lost in a sea of mass seminars but he is spot on with his recommendation that it is up to you to create the change you seek. Removing mental hurdles is the first step toward achieving clarity. Wanting the change badly enough and taking action are essential.

Time for action. As Marshall Goldsmith writes in his wonderful book, Triggers, most of us are really good planners and terrible doers. Personal growth requires both.

Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy.

– Dale Carnegie

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If you are looking for additional perspectives to guide you as you formulate your vision check out our Retirement Wealth Checklist.

__________________________________________________________________

Did you like this article? It would mean so much to me if you showed your love by clapping (👏) this article (you’ll see the little icon on the left! You can clap up to 50 times, so go hard!).

If you would like to subscribe to my blog sign up here. Thanks for reading and Pura Vida!

Is Your Caution Today Hurting Your Tomorrow?


How our brain works:

We all think that we are fully rational all the time but in reality the way our brains operate that is not always the case.

One of the key functions of the brain is self-defense. When the brain perceives danger it makes automatic adjustments to protect itself. When it perceives discomfort it seeks to engage in an action that removes the stress.

In his book “Thinking Fast and Slow” Nobel Prize Winner Daniel Kahneman explains how we all have a two way system of thinking that we use to make decisions. He labels the two components as System 1 (Thinking Fast) and System 2 (Thinking Slow).

System 1 is automatic, fast responding and emotional. System 2 is slower, reflective and analytical.

Think of your System 1 as your gut reaction and your System 2 as your conscious, logical thought.

While we all like to think that our key life decisions are governed by our logical thought (System 2) research has shown that even major decisions are often driven by our gut feel.

Which System do we use to make a decision? That depends on the problem. If we have seen the problem many times before such as what to do when see a red light we default to our automatic System 1 thinking.

When we face a challenge or issue that we have not seen before or maybe infrequently we tend to use System 2, our more reflective and analytical capabilities.

Kahneman’s research shows that we spend most of our time in System 1. While most people think of themselves as being rational and deliberate in their decision making, the reality is that we often employ “short-cuts” or heuristics to make decisions.

Most of the time, these “short-cuts” work just fine but occasionally for more difficult or complex problems the impressions arrived from System 1 thinking can lead us astray.

Why? Above all else, System 1 thinking seeks to create quick and coherent stories based on first impressions. These impressions are a function of what our brain is sensing at that moment in time.

According to Kahneman, conclusions are easily reached despite often contradictory information as System 1 has little knowledge of logic and statistics. He calls this phenomenon — WYSIATI — for “what you see is all there is”.

The main implication from WYSIATI is that people often over-emphasize evidence that they are familiar with and ignore evidence that may be much more relevant to the problem at hand but that they are not fully aware of.

System 1 conclusions therefore may be biased and lead to decision “short-cuts” or heuristics that seriously impair the quality of a decision.


What makes making “money” decisions so hard?

When it comes to investing people often rely too much on System 1 or automatic thinking. The research shows that we are not infallible and we in fact often make behavioral mistakes. Sometimes we over-rely on our gut feel without properly evaluating the consequences of our actions.

Often our brain perceives of the dangers first and sends us a warning signal to be careful. Losing money puts us on red alert.

Behavioral finance research (for example in the book Nudge) has shown that losing money makes you twice as miserable as gaining the same amount makes you happy. People are loss averse.

Loss aversion makes people overvalue what they have due to a reluctance to incur any losses should they make a change. What they give up, sometimes unknowingly, is potential upside.

Loss aversion creates inertia. Inertia often works against investors that overvalue the attractiveness of their current holdings.

There are different degrees of loss aversion. According to Prospect Theory, all investors value gains less than losses but some exhibit an extreme dislike for potential losses that significantly hinders their long-term wealth creation potential.

Nobody likes to lose money, but taking on risk in order to compound your hard earned savings is an integral feature of how capital markets work. You don’t get a higher reward unless you take additional risk.

Most investors know that stocks do better than bonds over the long-term but that the price of these higher returns is more risk. Investors also understand that bonds do better most of the time than simply purchasing a CD at the local bank or investing in a money market mutual fund.

But knowledge stored in your logical and analytical System 2 thinking does not always make it through in the face of stress or uncertainty.

People can become too risk averse for a couple of reasons:

· Case A: They let their fears and emotions guide their investment decision making and give disproportionate importance to avoiding any losses

· Case B: They fail to calibrate their expectations to the likely frequency of outcomes.

In Case A, investors seek the perceived safety of bonds often not realizing that as interest rates go up bonds can lose money. Or they simply pile into CD’s not realizing that their returns most often fail to keep up with inflation. Stocks are frowned upon because you can lose money.

Investors in Case A let their decisions be driven by emotion and fear and will over-value the importance of safety and under-value the importance of future portfolio growth. Their account balances will not go down much when capital markets experience distress, but neither will they go up much during equity bull markets.

In Case B investors mis-calibrate their expectations for various investment outcomes and the consequences can be as dire as in the first situation. Behavioral finance research has shown that investors frequently over-estimate the likelihood and magnitude of extreme events such as stock market corrections.

Investors often become fixated on what could happen should an equity market correction occur, but they fail to properly evaluate the likelihood and magnitude of such a correction in relation to historical precedents. They also importantly fail to properly calibrate the probability of observing a recovery after going through such a correction.

What are the implications for investors playing it too safe?

Let’s consider the case of investors currently working and saving a portion of their income to fund a long-term goal such as retirement. These individuals are in the accumulation phase of their financial lives.

Somebody in the accumulation phase will naturally worry more about how fast they can grow their portfolio over time and whether they will reach their “number”. People in the accumulation phase care primarily about their balances going up year after year. They are in “growth” mode.

The Hypothetical Setting:

To make the situation more realistic let’s look through the eyes of a recent college grad called Pablo earning $40,000 a year. Pablo is aware of the need to save part of his salary and invest for the long-term. He just turned 22 and expects to work for 40 years.

Pablo will also be receiving annual 2.5% merit salary increases which will allow him to save a greater amount each year in the future.

The Problem:

Pablo faces two key decisions — what percentage of his salary to save each year and the aggressiveness of his portfolio which in turn will determine its most likely return.

He is conflicted. He has never made this much money before and worries about losing money. He also understands that he alone is responsible for his long-term financial success.

Pablo knows that there is a tradeoff between risk and return but he wants to make a smart decision. His System 1 thinking is saying play it safe and don’t expose yourself to potential loses.

At the same time his rational and informed System 2 thinking is influenced by a couple of finance and economics classes he recently took while in college.

Pablo can succumb to automatic System 1 thinking and invest in a very conservative portfolio. Or he can rely on his System 2 thinking and invest in a higher risk and commensurately higher return portfolio.


One Alternative — Save 10% of his Income and play it safe investing

For simplicity sake assume that Pablo decides to put 10% of his salary into an investment fund. The fund consists primarily of high grade bonds.

From the knowledge gained in his econ and finance classes Pablo estimates that this portfolio should return about 4% per year — a bit below the historical norm for bonds but consistent with current market interest rates.

Pablo also understands that such a portfolio will have a bit of variability from year to year. He estimates that the volatility of this portfolio is likely to be about 6% per year. Again, this estimate is in line with current bond market behavior.

He knows that this is a low risk, low return portfolio but the chances of this portfolio suffering a catastrophic loss are negligible. He is petrified of losing money so this portfolio might fit the bill.

How large will his portfolio expected to be after 40 years of saving and investing in this conservative manner? We built a spreadsheet to figure this out. At the end of 40 years Pablo’s salary is assumed to be have grown to $107,403 and his portfolio, invested in this conservative manner, would have a balance of $575,540. The growth of this portfolio (identified as 10_4) is shown in Figure 1.

Figure 1


Source: Retire With Possibilities

Pablo knows that his portfolio will not exactly return 4% every year. Some years will be better, other years much worse but over the next 40 years the returns are likely to average close to 4%.

But Pablo does not feel comfortable just dealing in averages. If things go bad, how bad could it be?

Given the volatility of this conservative portfolio there is a 10% chance of losing 3.6% in any given year. Not catastrophic but nobody likes losing money.

Figure 2 shows the 90th and 10th probability bands for this conservative portfolio. These bands are estimated based on the expected average return of the portfolio and its volatility.

The actual portfolio return would be expected to lie about 2/3 of the time within these bands. In the short-term, say 1 to 2 years out, the portfolio returns are more unpredictable. Over longer horizons the average return to this conservative portfolio should fall within much tighter bands.

Based on our calculations, the average returns over ten years should range between 6.3% and 1.4% per annum. Clearly, even this conservative portfolio has some risk especially in the short-term, but over longer holding periods returns should smooth out.

Figure 2


Source: Retire With Possibilities

Another Alternative — Save 20% of his Income and continue investing in a conservative portfolio

The final salary would have been the same but his nest egg would have grown to $1,151,080. Pablo keeps looking at Figure 1 (the 20_4 line) and starts thinking that maybe a bit of extra saving would be a very good thing.

He still has a 10% probability of being down 3.6% in any given year, but if his budget allows, he feels that he can forego some frills until later.

Now, Pablo is starting to get excited and wonders what would happen if he invested more aggressively, say in a variety of equity funds?

Yet Another Alternative — Keep saving the same amount but invest more aggressively

The likely returns would go up but so would his risk. He estimates that based on current market conditions and the history of stock market returns that this more aggressive portfolio should have about an 8% annual rate of return with a volatility of around 14% per year.

He is thinking that maybe by taking more risk in his portfolio during his working years he will be able to build a nest egg that may even allow him for some luxuries down the road.

He also knows that things do not always work out every year as expected. He is pretty confident that 8% is a reasonable expectation averaged over many years, but how bad could it be in any given year?

We conducted the same analysis on this equity-oriented portfolio as before. Figure 3 shows the 90th and 10th percentile bands for this portfolio.

Figure 3


Source: Retire With Possibilities

Given the volatility of this equity-oriented portfolio there is a 10% chance of losing 9.2% in any given year. Ouch, the reality of equity investing is starting to sink in for Pablo.

But Pablo is also encouraged to see that his returns in any given year are equally likely to be about 26% or higher. That would be nice!

Especially when it comes to equities there is a wide range of potential returns but over time these year by year fluctuations should average out to a much narrower range of outcomes. While our best estimate is that this portfolio will return on average 8% per year over a ten year window the range of expected outcomes should be between a high of 12.9% and a low of 1.6%.

Pablo decides to research the history of stock, bond and cash returns by reading our April Blog on Understanding Asset Class Risk and Return and looking at a chart of long-term returns from Morningstar (Figure 4).

Figure 4


Source: Morningstar

He is surprised to find that over the long-term equities do not seem as risky as he previously thought. He is also quite surprised by the wide gap in wealth created by stocks versus bonds and cash.

The research makes Pablo re-calibrate his expectations and he starts wondering whether the short-term discomfort of owning equities is worth it in the long run.

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The “Aha!” Moment:

Pablo’s System 1 thinking is on high alert and his first thought after seeing how much he could lose investing in equities is to run back to the safety of the bond portfolio.

But something tells him to slow down a bit and think harder. This is a big decision for him and his System 2 thinking is kicking in. Before he throws the towel in on the equity-oriented portfolio he glances again at Figure 1 to see what might happen if he invests more aggressively.

What he sees astounds him. It is one thing to see compounding in capital market charts and yet another to see it in action on your behalf. Small differences over the short term amount to very large numbers over long periods of time.

If Pablo were to invest in the more aggressive portfolio there would be more hiccups over the years but his ending account balance should be $1,440,075 if he consistently put aside 10% of his salary every year.

If he saved 20% the ending portfolio balance would double in size.


Decision Time — Picking among the alternatives

Pablo is now faced with a tough decision. Does he play it safe and go with the conservative portfolio? Or, does he go for more risk hoping to end up with a much larger nest egg but knowing that the ride may be rough at times?

Beyond the numbers he realizes that he needs to look within to make the best possible decision. His System 1 thinking is telling him to flee, but his System 2 thinking is asking him to think more logically about his choices. He also needs to deal with how much he is planning to save from his salary.

Fear versus Greed:

He needs to come to terms with how much risk he is willing to take and whether he can stomach the dips in account balance when investing in riskier assets. As Mike Tyson used to say, “Everybody has a plan until they get hit in the face”.

In structuring his investment portfolio Pablo needs to balance fear with greed. Paying attention to risk is absolutely necessary but always in moderation and in the context of historical precedents. If Pablo lets his fears run a muck he may have to accept much lower returns.

With the benefit of hindsight he may come to regret his caution. On the other hand the blind pursuit of greed and a disregard for risk may also in hindsight come back to bite him. Pablo needs to find that happy medium but only he can decide what is right for him. Risk questionnaires can help in this regard. Try ours if you like!

Consumption Today versus Tomorrow:

Pablo also needs to come to grips with how much current consumption he is willing to forego in order to save and invest. We live in an impulse oriented society. Spending is easy, saving is hard.

Saving is hard especially when you are starting out. On the other hand, over time the saving habit becomes an ingrained behavior. The saving habit goes a long way toward ensuring financial health and the sooner people start the better.

Will Pablo be able to save 10% of his salary? Or, even better will he be able to squeeze out some additional expenditures and raise his saving to 20%?

If possible Pablo should put as much money in tax-deferred investment vehicles such as a 401(k). He should also have these contributions and any other savings automatically deducted from his paycheck. That way he won’t get used to spending that money. Pablo may come to see these deductions from his paycheck as a “bonus” funding future consumption.

“The greatest mistake you can make in life is to continually be afraid you will make one”

— ELBERT HUBBARD

Lessons Learned:

This has been an eye opening experience for Pablo. He was not expecting such a difference in potential performance. He now realizes the importance of maximizing saving for tomorrow as well as not succumbing to fear when investing for the long-term.

He has learned several invaluable lessons that also apply to individuals in the accumulation phase of their financial lives

Lesson 1: The Importance of Saving

  • Delaying consumption today allows you fund your lifestyle in the future
  • Saving even small amounts makes a big difference over the long-term

Lesson 2: The value of patience and a long-term perspective

  • In the early years you may not notice much of a difference in portfolio values
  • Keep saving and investing — disregard short-term market noise and stick to a plan

Lesson 3: Small differences in returns can amount to huge differences in portfolio values

  • Seemingly tiny differences in returns can result in large differences in portfolio values
  • Compounding is magic — take advantage of it when you can

Lesson 4: The importance of dealing with your fear of losing money

  • Letting your first instinct to avoid risky investments dictate what you own will work against you
  • Investing involves risk — best to manage rather than avoid risk
  • The pain and agony of losing money in any given year is alleviated over the long term by the higher returns typically accruing to higher risk investments

Lesson 5: Investing in your financial education pays off

  • Gaining a proper understanding of capital market relationships is an invaluable skill to possess
  • Leaning on financial experts to expedite your learning is no different than when athletes hire a coach

Now what should you do?

Avoid all risks, save a lot and watch your investment account grow slowly but smoothly? Or, take some risk and grow your portfolio more rapidly but with some hiccups?

Are a couple of restless night’s worth the higher potential returns in your portfolio?

Also, are you willing to delay some current consumption in order to invest for the future?

The answer depends on you — your needs, goals and especially your attitude toward risk and your capacity to absorb losses.

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If you are looking for additional perspectives to guide you as you formulate your vision check out our Retirement Wealth Checklist.

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