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What If Investments Don’t Matter Much, but Savings and Behavior Do?

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What If Investments Don't Matter Much, but Savings and Behavior Do?

You can certainly overpay, overplay, and overreact with investments to the point that returns freely provided by the markets disappear. That’s bad, but not saving and poor behavior outweigh the importance of investments several times over.

Investments are Like Candy

Investments are marketed like chocolate candy. They tempt you with the smell and expectation of a sweet taste. Some candy tastes better than others and some investments are better than others, but that’s mostly a diversion. You can’t achieve physical wellness on a diet of candy and you can’t achieve financial wellness by focusing on investments.

The problem is, we are bombarded every day with thousands of messages about candy (investments). Absent a clear destination and a rational path, it’s easy to succumb to the hype. We like candy…we want to believe the investment hype.

Investments and investment returns are just one part of the financial puzzle that is your life. You can’t ignore all the other pieces and just focus on investments without consequences.

Investments make great cocktail party chatter since everyone likes candy (investments). The more outsized the returns promise to be, the more we want the investments (candy), even if the investment doesn’t connect with our particular goals. Imagine what it would be like if everyone at the party talked about their savings rate instead of the “latest greatest” investment of the hour.

Focus on Saving and Behavior

If investments are like candy, saving for the future is like eating broccoli. It’s not quite as tasty now, but will be much better for us later. The number one presenting problem that we see with individuals who seek our help is under-saving. Without sufficient savings, nothing else works. Every component of your financial life becomes stressed.

Human capital, your ability to earn an income, a portion of which can be saved, is your most valuable asset. The aim is to gradually transfer the value of that asset (as it depletes over time) into financial assets that can support your life goals.

Related: Financial Peace of Mind: Are We There Yet?

When investors start to “double-down” because they are behind in saving for retirement, bad behavior often kicks in. Unfortunately, all of us are factory-wired to make financial mistakes. Worse still, we usually don’t even recognize that we are making mistakes. Thus, we repeat the mistakes over and over again.

Our approach has always been to help clients “look ahead” and create a realistic path toward their ideal life. Rarely do clients achieve financial security because of investments; they actually achieve their goals because of how much they save and how well they stay on their path. Ready for a real conversation?

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