Expect The Unexpected

Last week we got the opportunity to talk about my favorite sport – basketball and I thought it only appropriate to follow up this week with a discussion about my favorite movie – Good Will Hunting.

This classic flick stars Matt Damon, Robin Williams, Ben Affleck, Minnie Driver, and a host of other star actors.  If you haven’t seen it, you should go watch it right now.

One of the most memorable scenes is an interaction between Matt Damon, who plays a troubled genius, and his counselor,  played by Robin Williams.  Williams and Damon had shared multiple counseling sessions together, but in this particular session, Robin Williams makes the most important breakthrough in the film.  Williams begins to repeat these four simple words to Damon, “It’s not your fault.”  These words cut to the core of the anxiety and burden that Damon’s character had been carrying which resulted in the two characters weeping.

When you watch this scene, you cannot avoid feeling every emotion that these two characters are experiencing – the anguish, the relief, the pain, the anxiety, the fear, etc. It reminds me that humans are deeply emotional beings.  Although we try to bury these emotions in our logic and reasoning, when those triggers hit, the related emotions often surface very quickly.

Damon’s character is a savant level intellect and is able to outthink, outreason most everyone around him.  Our finances,  like the blindspot of his long-held fears, revealed in the film,  we are expected to approach this endeavor with those same attributes of logic and reasoning, but we know that it doesn’t always work that way.  Our deeply embedded emotions constantly surface, and we find ourselves leaning more into what we feel is right than what we know is right.

There are no ifs, ands, or buts about it, money is a very emotional topic.

Does this mean that we are doomed to make repetitive bad emotional decisions? No, not at all.  What this does mean is that (1) we must be aware that these emotions exist and (2) we must create an environment to best avoid these triggers.

Organizations like Alcoholics Anonymous (AA) have been dedicated to helping folks become self-aware to avoid relapses.  One memorable acronym AA promotes is H.A.L.T. which means that if you find yourself Hungry, Angry, Lonely, or Tired you should HALT and address those feeling before they lead to a bad decision.

The key to making good decisions is creating an environment that is conducive to success.  When it comes to investing, much of this battle is fought in your mind and it revolves around expectations.  Most bad financial decisions will be a result of an investor reacting to disappointment – an investment did not meet their expectations, and this triggered a feeling of disappointment which then lead to a poor decision.

Here on TOM, we’ve stated that there are big differences between long term average returns and the actual returns you experience on a yearly basis.  If you hear someone say something like, “The stock market has returned 9% on average over the last 100 years” then you might expect that if you invest in the stock market then you should always expect a 9% return.  Whenever we see this word expect, it should be a warning sign.

So… to equip ourselves for the realities of markets and to create that optimal environment for success, we need to first set the right expectations.

Do you know what “worst-case scenario” looks like for your portfolio?  Have you discussed this with your advisor in both percentage terms and dollar terms what this would look like?  And more importantly, what it would feel like?  You need to build into your financial plan these expectations so that you can avoid the potential for surprises you emotionally are not prepared for.

Let’s say you have a $3mm portfolio and you and your advisor conclude that, based on your allocations,  a worst-case scenario might result in a loss of as much as  20%.  In dollar terms, this means a $3mm portfolio would now reflect a value of $2.4mm,  a negative $600,000 change!  Can you stomach that?  If you cannot, then your advisor would design your investment portfolio more conservatively.  But say that you plan to leave your investments untouched for a longer period of time or that you want a more aggressive growth strategy that meets your future needs, that allocation might be just the right ticket.

The moral of the story is this, let’s make sure that our expectations are equipped with all the potential outcomes – the good, the bad, and the ugly.

I want to wrap up today’s discussion with my own “it’s not your fault” moment.  I’ve come across too many investors that blame themselves for outcomes that they had absolutely no control over, and I do want to tell them/you, “it’s not your fault.”  So much of financial planning is about doing your best to make wise decisions and then your ability to adapt/pivot as circumstances change.

I recently listened to an interview with a well-known financial planner by the name of Carl Richards and I loved the way he articulated financial planning.  He talked about how difficult it is to forecast in generalities as life will no doubt throw us curve balls (i.e. Covid19).  He transitioned from asking clients to layout their exact goals and plans, to asking them to make the best “guess” to what they’d like to achieve or where they’d like to be.  A small change, perhaps semantics, but it also relieves a lot of pressure on the investor and the advisor.  Remember, planning is about making wise choices and your willingness to adjust your plans along the way.

I often tell clients that financial planning is much more like a game of horseshoes than a game of darts – you can’t expect to hit bullseyes, but you definitely want to get as close as you can to the stake.

Thank you, once again for your support of Thought On Money.  And don’t forget to watch or rewatch, Good Will Hunting to find inspiration and solace that we can all do and be better.

Until next time.

The Bahnsen Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.

About the Author

Trevor Cummings

Private Wealth Advisor, Partner

Trevor is a Private Wealth Advisor focused on building customized financial plans for his and many clients of the team.

As the author of TOM [Thoughts On Money], Trevor endeavors to write and speak about financial concepts and principles in a kind of “straight” talk demeanor and posture.

He received his Bachelor’s degree in Organizational Leadership from Biola University and his MBA from California State University, Fullerton.

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