By Michael Aitken
In January 2018, 1,182 undergraduates at Yale University enrolled on the ‘Psychology and the good life’ course, in a bid to become happier.
“Students want to change, to be happier themselves,” Dr. Laurie Santos, the psychology professor behind the course - the most popular in Yale’s 316-year history – said. Youngsters work so hard to achieve the grades required to go to colleges like Yale, often to the detriment of their own personal happiness.
“In reality, a lot of us are anxious, stressed, unhappy, numb,” Yale student Alannah Maynez said, when explaining why she enrolled onto the course. “The fact that a class like this has such large interest speaks to how tired students are of numbing their emotions – both positive and negative – so they can focus on their work, the next step, the next accomplishment.”
The point is, being happy in life is essential – and in investing it’s no different.
It’s easy to fall into the trap of thinking that the more money you have - the better the job, the bigger the house or the faster the car – the more happy you’ll be. Those feelings may be present initially, but they don’t always last.
In his 1974 article, ‘Does Economic Growth Improve the Human Lot? Some Empirical Evidence’, Richard Easterlin describes how while industrialised countries had experienced phenomenal economic growth in the 50 years prior, there had been no corresponding rise in the happiness of their citizens.
‘Money isn’t everything’ is the key learning here. And that’s just as important when it comes to investing. Sure, we all want the most amount of money, both for now and in the future, so we can do the things we’ve always wanted to do. However, the key to financial happiness is to have realistic expectations about what you can achieve financially, that way you can’t be left disappointed.
Google X Chief Business Officer, Mo Gawdat, has come up with an equation for achieving happiness in life. It goes like this:
If you perceive events as being equal to or greater than your expectations, then you’ll be happy, no matter what happens, because you’ve prepared yourself for the negative tendencies of life.
Applying this model to investing is sensible. Investing in stocks, as opposed to treasury bills or cash, may be more risky. But we expect the long-term return potential to be greater. We expect different stocks to offer varying degrees of return potential, and while returns aren’t guaranteed – even over the long-term – our expectation is that they will be.
So if our investment expectations are realistic, then our happiness when things happen – for better or for worse – is going to remain higher.
If our perceptions are that market events – both good and bad – will take place, then when stock prices do come tumbling down, we’ll be more measured in our reaction to these moments of turmoil. Ancient wisdom teaches us to accept, because resistance often fuels anxiety. Instead of resisting periods of underperformance, which might cause you to abandon a well-designed investment plan, try to stay true to your long-term view.
Investing is like doing a bungee jump at times; we know that we’ll come hurtling down towards the floor at some point. But we must also remember that, eventually, the rope will go taut, before firing us majestically towards the sky once more.
Bungee jumping is an extreme sport, and stock markets can go through extreme periods of volatility as well. Like the bungee jump, the key to investing is to not panic at these extreme moments. You wouldn’t remove your rope and harness as you hurtle towards the ground, so why sell off your investment portfolio at the first sign of trouble?
Stick it out. Be realistic, keep things in perspective and trust that, like the elasticity in the string, the markets will stay strong and rebound upwards in due course.
I guess what I'm trying to say is; don’t worry, be happy.
Past performance is not necessarily a guide to future performance and you may get back less than invested.
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