You Must Surrender Control

In general most of us like to be in control of things.  Surrendering control in any facet of life usually requires faith and trust.  Riding shotgun in a car requires trust in the driver.  Taking medication demands trust in the manufacturer and the FDA. 

Control is good, and a condition of comfort and safety.

When I’m climbing a big mountain, it’s easy to feel in control.  But that’s mostly an illusion, a ruse.  I’m in control of a lot of it for sure.  My fitness, footwork, judgment, and skill are all things that I govern. 

But there’s lots I’m not in control of.  In climbing parlance we call these things “objective hazards”.  Things like rockfall, avalanches, storms, and dangers from other climbers or wildlife to name a few.  These things are mostly out of our control, and can be lethal.  

Objective hazards cannot be eliminated.  With planning and smart climbing their dangers can be mitigated somewhat, but the risk they present will always be there.

 

Stock Market = Objective Hazard

There’s lots of ways to discuss the concept of control in life.  The term locus of control is used in personal psychology to describe the degree to which people believe that they have control over the outcome of events in their lives.  JD Roth at Get Rich Slowly has done some great posts about this topic, and he dives into general control of all aspects of life, from relationships to jobs etc.

But I’m going to focus strictly on money and investments.  Like the dangers on a big mountain, the stock market is basically one big objective hazard for your money.  You can try to mitigate the hazards that come with the market by investing wisely and diversifying, but you cannot totally eliminate them.

This is from Vanguards website: 

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Investments in bonds are subject to interest rate, credit, and inflation risk. Investments in stocks and bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.

The bold italic items are out of your control.  And there are a ton they didn’t mention, probably for fear of turning new investors away.  After all, it’s not good sales practice to go into gory detail about all of the uncontrollable risks that can devalue the product you’re trying to sell.  

But when the next market crash or bear market comes – and it will come – there is one thing you have full control over. 

The actions you take based off your emotions. 

If you have a plan or strategy with your money, you can control your actions and stick to that strategy regardless of the objective hazards that will surely wreak havoc on the markets. 

You can put processes in place that force you take action (or not take action) based on your plan, not based on how you are feeling on a particular day or the movements of the markets.

 

Pot, Meet Kettle

For years I begged my Mom to let me put what little money she has in the stock market.  Because she’s a child of the depression I knew this was an uphill battle.  It’s hard for someone to relinquish control of their money to something that’s failed them before.  After all, she grew up in the poverty-stricken shadow of the greatest stock market crash in history.

It never happened.  To this day my Mom has most of her cash in a bank account, probably earning 2% or less.  Slowly being eroded by inflation.  Sure, I did convince her to buy some CDs, but those barely beat inflation.  The only reason she agreed to those is the fact that they’re FDIC insured. 

That serves as control for her. 

But I also commiserate with her.  Why?

I’m generally against recommending financial advisers since most people have relatively simple financial situations.  A simple strategy of maxing out tax-free options available and buying index funds works for most.  It’s a sure path to build wealth and requires little if any time investment.

Hiring a financial adviser, however, is the ultimate in giving up control.  With a financial adviser you’re not only subject to the objective hazards of the market, you’re now also giving up control to another person.  It’s basically loss of control, squared.

In a moment of self-reflection one day, I realized that was exactly what I was asking my Mom to do – give up control of her money to the stock market and to me!  To her, I represented a financial adviser.

Pot, meet kettle.

 

Learn To Surrender What You Must

As a study I previously posted about shows, many Millennials are weary of the stock market from the 2008 recession.  Becoming comfortable with relinquishing control of your money takes a mental leap. 

But to make money in the market you have to learn to surrender some control. 

Said another way, if you don’t risk anything, you risk even more.  Because without risk you’re unlikely to get the returns you want.

Just as I have to get over the mental hurdle of surrendering some control to the risks of avalanches, grizzly bears, and lightening storms when I climb mountains. 

If I don’t take any risks and surrender control, I surely won’t gain any summits.

Your turn financial warriors – are you comfortable with surrendering control when it comes to your money?