My daughter and son-in-law recently moved to Texas, taking our grandchild with them.  It was tough to see them go.  Even though we’ve visited them and enjoyed our time in Texas, it’s not the same as having them nearby.  They said to me that the opportunity for them was simply too good to pass up. 

Lately I’ve been reflecting on how I’ve made big decisions over the course of my life.  What I found surprising is that many of the same guiding principles that shape how I’ve made decisions in life also shape how I advise people to make decisions with their wealth.   None of us have a crystal ball to see the future and make perfect decisions every time.  But there is a guiding framework I’d like to share with you that I think can help you make decisions you probably won’t regret. 

 

WHAT’S AT STAKE?

I was not privy to all of the thinking and weighing of options that my daughter and her husband went through as they were considering their move to Texas.  They are intelligent and well-educated people and they are also wonderful parents.  They had clarity in their minds about how they believed this opportunity could work out for them. Making a decision like this isn’t easy, as there are many issues to consider.

The simplest form of decision-making is to recognize two opposing options, weigh the pros and cons of each option and then pick the one with the most pros and fewest cons.  Sounds simple right?  But we know that many of the decisions we have to make aren’t that clear-cut. One of the problems we must take into account is that the outcome of our decisions is often uncertain. 

The natural response to dealing with this is a hesitancy to do anything, fearing we will make the wrong decision or a decision that we will regret. I have seen this over and over again, where individuals often can’t pull the trigger to put a plan into action because of the fear of losing money on their investments.    

But there is another emotion in our decision-making that must be faced– greed, that is, the fear of missing out on the gains that others seem to be making in the market. This is most evident to me when investors try to time the market, making purchases when they feel the most confident, while the news is positive and markets are rising.  In turn, the fear of losing money causes many to think about getting out after the market declines.  Finding a way to overcome these emotions is essential to help people achieve their financial goals.

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"Today’s investors have more options and education than ever before. But learning doesn’t necessarily create wisdom. I enjoy leading our investment committee to create unique solutions that the guys on TV simply miss."

MY FRAMEWORK

After having served hundreds of clients over the last several decades and having led the investment committee at Whitnell for many years, I’ve come to identify a framework for decision-making that applies very well to wealth management.  But this framework also works well for making important decisions in life.  Here are the components of the framework:

  • Get clarity about your long-term goals.
  • Gather the most pertinent and reliable data you can get. 
  • Analyze your options and collaborate with other smart people.
  • Recognize those things you can and cannot control.
  • Make a decision and put it into action.
  • Be willing to stay the course over time, but balance this with the humility of recognizing that you can’t make perfect decisions every time.

 

GET CLARITY ABOUT YOUR LONG-TERM GOALS

In another article I relate a story about my first job interview.  I was asked how I might invest a million dollars, and being a bright young economics graduate, I had all sorts of ideas.  But I forgot to ask the person interviewing me about their goals.  I learned an important lesson that day – goals always come first.

I believe this is the starting point for any major decision you need to make.  It really doesn’t matter what options are in front of you.  What matters is how those options might help or hinder you in trying to achieve your goals.  Far too often we get caught up in the machinations of how this decision versus that decision might turn out.  But those outcomes only matter in as much as they help you move toward your goals or take you off-course. 

This is why I recommend that you get clarity first, before you do anything else, about where you’re going and why this matters to you and your family.  This will probably require some real soul-searching on your part, just as it did for my daughter and son-in-law.  So here is a simple exercise that I think can really help you.

Take out a piece of paper and write 5 Years From Today at the top of the paper.  Then make a list of every good thing you’d like to see happen within the next 5 years.  The important thing is that you write down what matters to your family.  I recommend that you do this with a spouse or someone who knows you really well so you don’t miss something important that might not be top of mind right now. 

Turn the paper over and write 10 Years From Now.  Then record all of the good things that you want to see happen to your family within the next ten years.  You can do the same thing for goals you want to achieve in 20 years or even longer.  What are the outcomes that you want to realize?  You can certainly include personal financial goals.  But I find that most people do best when they focus on family goals like:

  • I want to see my youngest child graduate from college
  • I want to see all of my children gainfully employed.
  • I hope to see two new healthy grandchildren.
  • I want us to spend at least ten days in our vacation home with the entire family.
  • I want to ensure my parents are taken care of and not at-risk.

Don’t feel like you have to prioritize the goals or make tough choices about what to include or exclude.  This exercise is about envisioning the future you want to live.  The time to make tough choices will come later, in consultation with a financial planner whose job will be to help you build a plan to realize those dreams. 

So now I ask you.  Where do you want to be in 5 years, 10 years, 20 years or longer? 

 

GATHER THE MOST PERTINENT AND RELIABLE DATA YOU CAN GET

There is more information available today than ever before in human history.  But the phenomenon of “fake news” has given rise to unprecedented levels of mistrust.  I think there are two key questions we should ask ourselves today when it comes to using information to shape our decisions:

  • Given the volume of data that is available, how can we know which data sources are indicative of trends we should consider?  In other words, which data sources should influence us and, just as importantly, which should not influence us? 
  • How can we know that data is accurate, trustworthy, free of errors, without bias and reliable? 

These are tough questions.  But I think they are the right ones.  When you have a big decision to make in life, you may or may not be able to find reliable information that is indicative of trends you should consider.  But I urge you to try to find this information, if possible.  It’s amazing how good, accurate information can clear the air and create clarity where there was previously only uncertainty. 

Research and reliable information have become so important to me and my team on the Whitnell investment committee that we have made this a top priority.  In this article, I describe the importance of bottom-up research.  This is research we do to assess the fundamentals of any investment opportunity.  This is a painstaking approach that takes time to complete.  But it gives us the confidence to stand behind decisions we’ve made, even when things don’t go exactly as we had hoped in the short-term. 

So now I ask you, which data sources do you rely on to make decisions?  How do you know you can trust that data?

 

ANALYZE YOUR OPTIONS AND COLLABORATE WITH OTHER SMART PEOPLE

When facing a big decision, research should help you boil down a set of options to consider.  For my daughter and son-in-law, their options were to stay in Illinois and keep going down what seems to be a known path or to move to Texas and start a new life, going down an unknown path.  While there could have been other options, these two paths were distinct. 

I find that it’s easier to make decisions once you’ve considered your data sources and then limited the choices.  When you have to choose between A, B or C, then ask two important questions:

  • Which option seems most likely to expedite us toward our goals with the least risk?
  • What does the data tell us about the likely outcomes of each option?

However, your analysis might not have considered everything if you try to do it entirely on your own.  I wouldn’t do that.  This is why we have an investment committee made up of smart people who come from different life experiences and backgrounds.  Collaboration is important. 

When you have a big decision to make in life, I recommend that you get together smart people you trust who know you.  Share the options you see and the research you’ve done.  Explain why you might be leaning in a certain direction and how you think that direction will work out for you.  Their insights could be surprising to you and help you make a better decision.  This is crucial to avoiding regret.

So I ask you.  Who is helping you analyze your options and make decisions?

 

RECOGNIZE THOSE THINGS YOU CAN AND CANNOT CONTROL

In nearly any decision you make, there will be things you can and cannot control.  For example, my daughter and son-in-law chose to move to Texas, in part, because he had a chance to move up inside his company, a growing and successful company.  But that could change.  That company might experience a decline or change their focus and he might be downsized.  That is certainly beyond his control. 

When it comes to making big decisions, I believe it’s important to differentiate between those things you can and cannot control and to focus your energies on what you can control.  This greatly increases the odds that you’ll use your energies to effect outcomes you want to see.  This also helps reduce worries and anxiety. 

Sometimes the things you don’t control can determine the outcomes of your decisions.  This is reality.  Here is what I’ve learned after many years of making investment decisions for my family and my clients.  You can’t measure the efficacy of a decision by outcomes only.  A baseball analogy applies. 

A pitcher is ahead in the count against a batter who can’t seem to lay off high-and-tight fastballs.  The catcher calls that same pitch and the pitcher delivers a 90 mile per hour screamer just inches from the batter’s chin.  The batter finally connects with this one and clobbers it over the fence – a homerun.  The pitcher slumps his shoulders.  Game over. 

The catcher walks up to the pitcher and says – “it wasn’t a bad pitch, it was a good hit.  Nine times out of ten you would have struck him out on that pitch.”  The data (which is now ubiquitous in baseball) supports that statement.  Life and the investment world are very much the same way.  We make decisions based on the best available information in the moment.  But there are many things we don’t control.

So I ask you, who is helping you focus your energies on those things you can control? 

 

MAKE A DECISION AND PUT IT INTO ACTION

I recommend that you do your best thinking until it’s time to make a decision.  Then act.  All decisions require some level of faith, as my colleague Pat Hickey pointed out.   But you’ll get nowhere if you don’t act.  Analysis paralysis is a real problem for some people.  Please don’t make this mistake. 

Once you’ve completed your analysis, make your decision, execute in full measure and don’t look back.  The more conviction you feel in your decision, the stronger your actions will be and the better results you are likely to see.  Only time will tell if you made the best decision.  But if you don’t execute with confidence, you may not position for the results you want to see down the road.  Half-hearted commitments often produce half-hearted results.

I also recommend that you document why and how you made your decision.  The bigger the decision, the more documentation you might include, especially data sources that shaped your thinking.  I find that many people suffer from perfect hindsight.  It’s easy to look back on decisions we made years ago and to speculate about why things turned out the way they did.  Hindsight is 20-20.

But we are all making decisions based on imperfect knowledge and assumptions about how we think things could go.  If a decision does not turn out as we had hoped, it’s easy to forget all of the hard work we put in to making that decision.  But if you have documentation, you can reflect back on your state-of-mind at the time you made the decision. 

So I ask you.  Are you confidently making decisions and then putting them into action? 

 

BE WILLING TO STAY THE COURSE OVER TIME

Once you’ve made a good decision, don’t second-guess yourself.  Have the courage of conviction and the willingness to stay the course even when the winds of adversity blow.  But also have the humility to recognize that not every decision you make will be perfect.  It’s important to be willing to change your mind when it’s clear that you made an imperfect decision.  The tug of war is between sticking to your beliefs and making a change when it’s absolutely necessary.  This is always a tough call. 

My sense is that usually you’re better off making good, thoughtful, long-term decisions and sticking with them over time.  People who try to make too many quick decisions in too short a timeframe usually end up with regret, in my experience.  This is also where your documentation can really help.

If you are considering a change in direction, I recommend that you review the reasons that formed the basis for why you made your decision.  Then ask yourself, what has changed?  If the data sources now indicate a materially different outcome than when you made your decision, you might have reasonable grounds for making a change.  But if the only thing that has changed is the way you feel about your decision, it’s probably best to stay the course. 

So I ask you.  Are you acting on the courage of conviction, even through adversity? 

 

NEXT STEPS

The big moves in life take time to mature and pay off.  My daughter and son-in-law weighed the plusses and minuses and made their decision.  They may not know for many years whether or not it was the best option to move to Texas.  But they made their choice based on the best available information in the moment for their family and for now they are happy with the decision. If you or someone in your family is making a big decision, please know that our door is open to help you in any way we can.   

 

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