“If I were an executive coach, I would try to focus each individual on the facets they can control. Emphasizing what’s in your control allows you to adopt an attitude of equanimity toward luck. You’ve done all that you can, and from there you have to live with the results—good or bad.” – Michael Mauboussin
Wading through the overwhelming noise can be a chore when dealing with your finances and investments. Here’s my list to help you decide what really matters and what you can do without when making financial decisions.
Doesn’t Matter: Your theories on tax policy.
Does Matter: Taking advantage of tax sheltered retirement accounts.
Doesn’t Matter: Developing tactics for every short-term market move or geopolitical risk.
Does Matter: Crafting long-term principles that can guide your actions through multiple scenarios.
Doesn’t Matter: Your political views.
Does Matter: Creating a comprehensive financial plan.
Doesn’t Matter: How cheap your trading commissions are.
Does Matter: Keeping your overall investment costs in check.
Doesn’t Matter: The inevitable market correction.
Does Matter: How you react when stocks fall.
Doesn’t Matter: What happened in the market yesterday.
Does Matter: An understanding of your time horizon.
Doesn’t Matter: Trying to time the market.
Does Matter: Your behavior so you don’t buy high and sell low.
Doesn’t Matter: The value of the U.S. Dollar.
Does Matter: Improving your career prospects to earn more of those dollars.
Doesn’t Matter: Your thoughts on where interest rates are heading this year.
Does Matter: Your tolerance for risk in your portfolio.
Doesn’t Matter: Trying to explain why the market rose or fell on any given day.
Does Matter: Ignoring the endless noise about daily market moves.
Doesn’t Matter: How rigged you think the CPI inflation calculation is.
Does Matter: Your personal spending inflation.
Doesn’t Matter: The next release of the minutes from the latest Fed meeting.
Does Matter: How much money you save.
Doesn’t Matter: Having the highest IQ in the room.
Does Matter: Developing your emotional intelligence.
Doesn’t Matter: Arguing with people on Twitter about their stock picks.
Does Matter: Keeping the negativity in your life to a minimum.
Doesn’t Matter: What your brother-in-law says he made on a penny stock.
Does Matter: The fact that 8 out of 10 small businesses fail within the first year.
Doesn’t Matter: How many jet skis and snow mobiles your neighbor owns.
Does Matter: Your net worth.
Doesn’t Matter: The next 3-5% move in the stock market.
Does Matter: Increasing the amount you save each year by 3-5%.
Doesn’t Matter: The daily value of your portfolio.
Does Matter: The value of your portfolio when you retire.
Doesn’t Matter: Making occasional mistakes with your finances.
Does Matter: Continuing to make the same mistakes over and over again.
Doesn’t Matter: Spending money on things that make you happy (meaning it’s OK to do this).
Does Matter: Cutting back everywhere else.
Doesn’t Matter: Losing money in your portfolio occasionally.
Does Matter: Running out of money before you need it by not taking any risk.
Doesn’t Matter: Buying stocks at the absolute top or bottom of the market.
Does Matter: Dollar cost averaging over multiple decades.
Doesn’t Matter: Consistently beating “the market.”
Does Matter: Slowly building wealth over time to achieve your goals.
Doesn’t Matter: How high frequency trading affects the market.
Does Matter: How little you trade in your accounts.
Doesn’t Matter: That one stock you sold too soon or didn’t buy early enough.
Does Matter: The opportunity cost of not saving early.
Doesn’t Matter: The number of stock tickers on your watch-list.
Does Matter: The number of books you read.
Doesn’t Matter: The latest pundit predictions.
Does Matter: Understanding financial market history.
Doesn’t Matter: The specific investment strategy you choose to implement.
Does Matter: Your ability to stick with that strategy over various cycles.
Doesn’t Matter: The upcoming GDP or unemployment number.
Does Matter: How little you worry about a single piece of economic data.
Doesn’t Matter: Your stock picking skills.
Does Matter: Your asset allocation.
Doesn’t Matter: Having a positive outcome every single time you invest.
Does Matter: Having a rules-based process.
Doesn’t Matter: Predicting the next Black Swan.
Does Matter: Your ability to focus on what’s within your control.
Doesn’t Matter: The latest tactics from your favorite financial pundit.
Does Matter: Long-term thinking.
Doesn’t Matter: The interest rate you earn on your savings account.
Does Matter: Allowing compound interest to do the heavy lifting for you.
Doesn’t Matter: How much risk everyone else takes.
Does Matter: How much risk you are willing and able to take.
Doesn’t Matter: Doing something all of the time.
Does Matter: Doing nothing most of the time.
Interesting list. Too bad the stuff that doesn’t matter gets constantly shoved down our throats (what the stock market did yesterday, what this pundit thinks about the economy, what HFT means to you). It’s hard to ignore, even for the most steadfast investor.
The one that stood out for me was that consistently beating the market is not as important as slowly building wealth over time.
Well done!
You’re right, the stuff that doesn’t matter is what we hear more than anything which is why it can be so difficult for many to wade through it all and figure out what’s really important.
Interesting reading. Effective when looked at with sane outlook.
Thank you for this thought creating piece of information. It encompasses a motivating book on Finance,
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I like the structure of your post. Unfortunately, the “Does Matter”s are not sexy enough to make the news, so we are bombarded with messages that we should be on top of information we should actually ignore. And that’s what we talk about among ourselves at social gatherings–when it’s not taboo to talk money.
The world will be a better place when “buy and hold”, “save and invest at regular intervals”, “save more of your income as your pay increases” and “focus on the long term” can be discussed. Or, better yet, not discussed because they have become the norm.
Good points. It’s boring to talk at dinner parties about the basics that get you 90% of the way there. Much more exciting to talk about the recent market moves and stock picks. The problem is many people don’t understand this dynamic because there is so much information out there to choose from.
Great list! I really enjoyed reading this post. 🙂
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Most of these make good sense. The one I’d quibble a bit about is asset allocation trumping stock picking skills. Oh I know there have been academic studies to this effect, but they tend to heavily rely on the Efficient Market Hypothesis, where the goalposts for the time ranges are set, or on sleights of hand such as “risk adjusted returns”. In any event, no asset class has outperformed stocks over very long time periods. Obviously, how much time you have matters.
Of course, if one doesn’t happen to have any stock picking skills, then sensible asset allocation is probably your best bet. But say you are good at picking stocks. What then? I’ll venture that over the long haul an effective stock picker will do far better than the most optimal of asset allocations. Mind you, if you believe in EMH or guys like Taleb, those people don’t exist anyway 😉
I’d say only about 5% of investors can consistently be great stockpickers over the long haul. For the other 95% of investors asset allocation is much more important, as you stated. And even the best stockpickers are going to have trouble if they’re constantly carrying 50% of their portfolio in cash. But after making that determination, stockpicking is important, especially if you have a concentrated portfolio.
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Thank you for the wonderful collection of common sense/wisdom. I had to laugh at myself in the doesn’t matter category multiple times!
Thanks!
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“Doesn’t Matter: The daily value of your portfolio.
Does Matter: The value of your portfolio when you retire”
I prefer: Does Matter: The income your portfolio generates when you retire!