Most of the time, you should ask yourself: “How much of my life did that cost?”
A $30 item may cost 1-3+ hours of your life, after you account for life-hours you lost commuting, packing lunch and ironing your office shirts.
But there’s one exception. DO NOT contemplate “hours of your life” when you think about money you lost investing.
I know, I’m recommending serious cognitive dissonance. Here’s why.
Investing as a Zen Practice
Investing is best approached as a zen practice: one that’s marked by peace, detachment and acceptance.
Investing is risky. We know that truth, although sometimes we like to deny it. We like to pretend we can enjoy gains without losses.
Stress and strife comes from that denial. We feel disappointment when reality doesn’t align with our expectations.
Our sheer sense of helplessness compounds the disappointment. After all, the markets are outside of our control. We can’t place an angry phone call to the Fed when stocks tumble. We can’t have Mommy talk to the teacher and make everything okay.
Investing peace comes from embracing the risk, accepting our lack of control and letting go of the outcome. Yes, risk is real. You will bust your butt to earn real dollars that will disappear into the ether. And that’s okay.
Relax. That’s just the nature of investing. Let it go.
There are no returns without risk. They keep each other in balance. Risk and return are two halves of the same body; they cannot be separated.
The sooner we quit denying half of the equation, the more peace we’ll feel with our investments.
The Adolescent Crush
When our investments rise, we cheer. But when they drop, we panic. The emotional yo-yo is exhausting – like a middle school crush.
The emotional yo-yo is an investor’s worst nemesis. It causes both panic selling and “buying at the peak.”
Instead, take a zen approach: be neither happy when your investments rise, nor sad when they fall.
Just observe what happens, but don’t emotionally respond to it. If you feel yourself reacting – (and you will) — re-center yourself. Release any hopes, fears or expectations that you hold. Let go of what happens next.
If you frame your losses in terms of the hours you logged at a computer screen to earn that money, you may become too risk-averse.
If you frame your gains in terms of the hours you no longer need to sit in front of a computer screen, you may become too aggressive.*
Instead, ignore your losses and gains. Let go of the compulsion to check your balances. Tell yourself “this is only temporary,” regardless of whether your portfolio is soaring or sinking.
This is my ultra-simple investing plan:
1) Earn more, save more, invest more.
3) Let go of the outcome. Accept that whatever happens, happens.
Focus on the amount you invest each month (within your control) rather than the performance of those investments (outside your control).
Don’t discuss your investments with anyone other than a spouse, mentor or trusted fellow zen investor. The “masses” will urge you to panic and/or celebrate, and you should do neither.
Embrace detachment from the outcome. You’ll feel more at peace, and you’ll also be a better investor.
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P.S. *There is one benefit to framing your gains with regard to the hours that you no longer need to sit at a computer: it can push you to contribute to your investments more aggressively, as opposed to choosing riskier investments. Again, this is “within your control” vs. “outside of your control.”
P.P.S. Obviously, risk isn’t one-size-fits-all. Duh. There’s a massive difference between buying a total stock market index fund vs. buying crude oil futures. You’re sophisticated readers; you already know that.
Thanks to Pink Sherbet Photography / Flickr for today’s photo.