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The Presumption of Importance


Most of us presume events of the day, particularly those within the political or financial realms, are of vital importance and will remain so in the future. When something happens on the world stage today, we are tempted to believe it will alter the trajectory of history.

If the stock market has a several hundred-point selloff, surely financial Armageddon is just around the corner. If something negative occurs at home or abroad, we translate this into something of long-lasting and transformational importance.

What If…

Try this thought experiment: Assume that there was only one trading day in the stock market at the end of each year. Would you be as stressed about day-to-day swings knowing there was nothing to do until that single trading day? Instead of focusing on day-to-day ups and downs, would you necessarily pay attention to year-by-year changes instead?

Let’s further assume that you are invested in a global 60% stocks and 40% bonds portfolio, such as the Dimensional Global 60/40 Fund. Looking back over the past 20 calendar years, there were 15 positive return years and 5 negative return years with an average return of 7.5% per year. The best year for the portfolio was 27% and the worst year was minus 22.7%. Here is a year-by-year summary with the returns for each calendar year.


Dimensional Index Returns

Source: Dimensional Matrix Book 2018 Historical Returns Data

Again, if you could only trade on the last day of the year would you be less concerned about your portfolio on a daily basis?

Related: The Market and the Jelly Bean Jar

Everyday Occurrences Rarely Have Lasting Importance

The point of this thought experiment is to shift away from the stuff in our lives that we presume to be of real importance, but actually matter very little. We think these things will matter in the future and in reality, they won’t even be a blip on the screen of life.

To further the point, have you ever looked back at a journal or diary that you wrote in long ago and wondered why you decided to highlight a certain event? In cleaning out some items in my desk recently, I came across an old 10-year journal with a few lines for each day on a single page that cover that date in consecutive years for a decade. I was surprised about some of the things I might have thought of as important 10-15 years ago that don’t matter now.

What we value most, the things we want to accomplish, also change over time. Those aspirations we held dear a few years ago may have been replaced by other, more meaningful objectives. We should avoid the presumption that everything that occurs every day will have long lasting importance to our lives. Start there. Ready for a real conversation?

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