ca. 1960: Swiss psychology pioneer Dr. Carl Gustav Jung (1875–1961).
The pain of loss affects us at the least twice as much as the enjoyment of gain. This powerful commentary by Daniel Kahneman has implications for nearly every area of our lives, but especially for our funds, where losses and gains are so clearly expressed in numbers.
We’ve discussed how financial planning is fundamentally an exercise in error management. But the query stays: “How do we recover from our mistakes?” Here’s a one-step process to get back on target:
1. Do the following neatest thing
Although the recovery movement has mastered this easy maxim, its origins predate Alcoholics Anonymous, as I even have just learned, although its source nearly anonymous. Would you suspect that the famous psychiatrist Carl Jung responded to letters from individuals who were in trouble and gave life-changing advice that cost not more than a postage stamp?
In fact, in 1933, Jung answers Mrs V., who’ve difficulty finding direction in life:
“There is no one, clear path for the individual that is prescribed or the right one,” writes Jung.
We must pause here, because on this one statement lies a truth that we as a community of monetary advisors (which I include the complete financial industry and all of the self-proclaimed financial gurus on the market) have did not acknowledge:
There shouldn’t be only one method to do financial planning.
It’s not the best way your bank, brokerage firm or insurance company does things. It’s not the best way Dave Ramsey or Suze Orman does things. It’s not even the best way your personal advisor does things, since the optimally positioned advisor acts as a guide, not a dictator.
The full profit and purpose of monetary planning shouldn’t be to give you a number, but to discover and discover what’s most significant to you in life – after which, and only then, to make use of your many financial and other resources to pursue those goals. But I digress.
Jung continues: “But if you want to go your own way, it is the path you make for yourself, which is never prescribed, which you do not know in advance and which simply comes about by itself when you put one foot in front of the other.”
This jogs my memory of the BAT success triangle – behavior, attitude and technique. While all of us too often go around in circles trying to search out the right technique or wait for the epiphany that can correct our attitude, the straightforward decision to act (or not), to place one foot in front of the opposite – is an important prerequisite to any successful endeavor.
So how can we know if the step we’re taking is the appropriate one – the right one? “And then you also know that you cannot know,” Jung reminds us, “but just do the next and most necessary thing.”
The implication here is that we all know what the “next and most necessary” thing is. And indeed, the boundaries of wealth management can get extremely complicated, but many of the financial mistakes that get us into trouble have obvious solutions. Most of the time, it’s more about doing what we all know than knowing what to do.
The reward for doing the following right thing is commonly taken without any consideration, because “… when you do the next and most necessary thing with conviction, you are always doing something meaningful,” says Jung.
And don’t we all know that is true? The first day of a brand new weight-reduction plan, fitness program, job, relationship, or financial resolution at all times feels right. So while I’ve discussed the myriad ways of monetary planning on this column and can proceed to achieve this, there’ll at all times be steps two to many, with step one remaining:
Do the following neatest thing.
