Filed under: Investing
If you think achieving higher expected returns on your investments is difficult, you are mistaken. But an even bigger mistake is assuming more money will make you happier.
Bigger Returns Are Achievable
Earning higher expected returns can be simple. Here is the process in three steps:
- Determine what you want your asset allocation to be — how you want to balance your portfolio between stocks and bonds. One way to help identify the right asset allocation for you is by taking a free risk-capacity survey, such as this one from Vanguard.
- Create a globally diversified portfolio of low-cost, low-management-fee index funds.
- Rebalance your portfolio once or twice a year to keep your actual asset allocation in line with your target balance, or to adjust the allocation if your investment objectives or tolerance for risk have changed.
I don’t want to oversimplify the case for evidence-based investing (also called passive or index-based investing). Maintaining a disciplined investing plan can often be difficult for self-directed investors. When the inevitable market corrections appear, it can be emotionally challenging to rebalance by purchasing stocks when they’re declining in value, and selling bonds when their value is increasing.
To achieve higher expected returns, it’s extremely important that you ignore most of the financial media. It feeds you a daily grist of “financial psychics” pretending to have the expertise to pick winning stocks, time the market, and select “hot” fund managers. Once you understand that the “success” of such forecasts is most likely attributable to luck (and cherry picking their data after the fact), and not to skill, you’ll be well on your way to capturing the market returns that are yours for the taking.
More Money Doesn’t Mean Greater Happiness
Over the years, I’ve dealt with thousands of investors who were intensely focused on improving their returns. Understandably, many were concerned about having enough money to retire with dignity, if at all. I have been struck, however, by the number of wealthy and successful people I’ve met with an insatiable desire to increase their net worth, even though they’d already achieved financial success by any objective measure.
These people share one common characteristic. They are fundamentally unhappy. They believe increasing their net worth will make them happier. When they find it doesn’t, instead of looking for the root causes of their unhappiness, they double down on their efforts to accumulate more assets.
I confronted the issue of trying to attain a higher level of happiness in my own life. When I achieved financial security, I found it didn’t actually increase my happiness. I still felt there was no real purpose in my work or my life. I was trapped in an endless grind, with no “happiness payoff.”
Shiny Objects, Unhappy People
My happiness breakthrough came when I started writing the “Smartest“ series of investing books. They’ve been read by hundreds of thousands of investors all over the world. One was even translated into Chinese. I started getting emails from readers telling me how my books changed their lives. Some told heart-wrenching stories about how they were victimized by their brokers and advisers. As a result, I found a purpose in my life that transcended my self-interest. The realization that I touched people’s lives in a positive way has made me a much happier person, content with my life and very grateful for it.
I touched people’s lives in a positive way, which has made me a much happier person.
You wouldn’t think it would be necessary to extol the virtues of being happy. There is ample evidence that happiness is positively linked to living a longer life, and even to having an improved immune system. Much has been written about how to achieve happiness. But a good start is by focusing on positive relations with others, and on demonstrating genuine empathy. You can try using these 25 science-backed ways to be happy.
Achieving financial security is a very worthy goal. Doing so at the expense of your own happiness is a flawed plan. Fortunately, you can have both.
Dan Solin is the director of investor advocacy for the BAM Alliance and a wealth adviser with Buckingham. He is a New York Times best-selling author of the Smartest series of books. His latest book is “The Smartest Sales Book You’ll Ever Read.”
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Source: Investing
