New Year, New You

And just like that… 2021 is drawing to a close. Regardless of the status of the world, this time of year is always a good opportunity to both reflect on the year that was, while also planning for the year ahead. 

Speaking of which, have you started thinking about 2022 New Year’s resolutions yet? Odds are pretty good that more exercise and more saving are on your list (yet again!). A new year provides a fresh start which has been proven to be a powerful motivator in changing behavior. 2022 will be your year! 

Yet, this cycle seems to repeat itself annually. In fact, most resolutions are abandoned around January 19th. How do things go so wrong, so quickly?

The Globe & Mail published an interesting read about how to stop avoiding your finances. Getting your finances in order is a daunting task! There’s likely a mixture of some strong emotions: fear, anxiety and failure involved with taking a hard look at yourself in the financial mirror. You don’t get any of that watching Netflix (well, maybe a bit of anxiety with Squid Game). The article suggests taking it easy on yourself, admitting you have been avoiding tackling this and forgive yourself. Take stock of your current situation and view it as merely a snapshot in time, not a life sentence.

“Personal finance is more personal than it is finance.”

The above quote was used in Morgan Housel's terrific book: The Psychology of Money. Morgan takes a unique focus by paying attention to what’s happening between your ears vs. what’s happening in markets when it comes to investing. A key theme was that we are all individuals with our own unique pasts and experiences that shape our views. For example: What does 2008 and the Great Financial Crisis mean to you? Do stocks only go up (to the moon)? There’s a very good chance someone else reading this holds the exact opposite opinion to you.

Coming to terms with this and understanding that we cannot stop our own biases, only live with and adapt to them, is key. Setting up systems to compensate for them is the best course of action one can take, and is often a lot better than many others do!

High Level Takeaways

• The purpose of money isn’t to make a spreadsheet happy, it’s to provide you and your family with a better life. 
  • It’s ok to embrace irrationality if its helping you to sleep at night.
• Think about what you want, then work backwards towards what system you can put in place today to get there.
• Need to find your own path. It will look different than others and that’s ok.

Power of Compounding

• Don’t need to focus on the best strategy in any given year, need to focus on how long you can continue to implement your strategy.
• Last Man Standing - Blog Post
  • “Everything worthwhile in investing comes from compounding. Compounding is the whole secret sauce, the rocket fuel, that creates fortunes. And compounding is just returns leveraged with time.”
  • “The time component of compounding is why 99% of Warren Buffett’s net worth came after his 50th birthday, and 97% came after he turned 65.”

Goals vs. Systems

• Goal: I want to lose 10 lbs.
• System: I want to workout for a minimum of 30 mins, 3x/week.
  • Goals evolve while systems can be permanent. 
    • Once you lose the 10 lbs, save $X amount, then what?
• Setting up systems (and sticking to them) is the best way to attain long-term success.
  • Ex. Consider setting up an automatic investment plan. 

Planning the Work

• An imperfect saving strategy you can stick with will usually beat the “perfect” strategy you abandon at the first sign of trouble.
• The definition of “luck” is very similar to the definition of “risk”. If you respect one, you have to respect the other.
• Just because you’ve spotted something that looks unsustainable, doesn’t mean you can predict when it will end. 
  • You should approach predictions with humility.

Working the Plan

• Realize many investors are playing a different game than you are. 
  • Try to tune out “noise” and put a roadblock between what hear vs. what you do.
• You can quickly get into trouble when you let those playing a different game influence how you play your own.
  • You can watch a hockey game and enjoy it, doesn’t mean you have to train at an NHL level.
  • Keep this in mind if watching/reading financial news. 
• If you started investing last year, markets doubling is your only experience. 
  • This is not normal. Some market history and setting more reasonable expectations will go a long way in helping you plan realistic goals.

I’ll end with a favourite quote of mine: “the more uncertain a situation, the more certain your course of action”. A practical example would be the more uncertain you are of how well maintained a plane is, the more certain you are you’ll be catching another flight. Predicting the future has always been a near impossible task and it certainly hasn’t gotten any easier these past 2 years. With this in mind, for your 2022 resolution consider putting in place a robust systems, such as automatic contributions, to help you reach goals as opposed to goals themselves.

We’d love to hear what systems you’re putting in place or offer a helping hand! Please let us know what your 2022 New Year’s resolutions is going to be and if there’s anything we can do to help.

Wishing you and your families a very safe and festive holiday season!