Exploring balloons, writing, and thinking time

Welcome to the Intentional Dollar weekly newsletter — great work taking this small step to move your money forward. I’m Logan, a Certified Financial Planner™, and I’m excited you’re here!

What’s inside?

• One tool to experiment with

• Two quotes from others

• Three questions to dig deeper

• Four lines of poetry for the point

_{One tool to experiment with:}

Balloons:

Have you ever been guilty of tethering your emotions to your portfolio values?

We feel great when the market is up and terrible when it’s down. Daniel Kahneman explored this phenomenon with Amost Tversky in their Nobel winning work on Loss Aversion — the idea that we investors don’t rationally value gains and losses; losses are more painful than gains.

When we let our egos and emotions balloon up with our portfolio values, we are teeing our future selves up for disproportionate disappointment. We feel that the stated market value is something we own, and when values go down, we perceive it’s something we lost. Values and assets don’t move in a linear direction. It would be much easier psychologically if this were the case, but it’s not.

Think of this perspective as a value balloon that climbs as your stated portfolio values climb. As long as things climb up, this is fine; it’s different when the market falls and your balloon (happiness, ego, plans), pops.

Values are living, dynamic, volatile figures — that bounce around to the beat of fear, greed, and prosperity. You can bet that the kinetic energy trapped in your assets will change them one way or another with each market day. These are table stakes for investing in “risk” assets (something outside of a bank CD, guaranteed vehicle).

Value ballooning happens because we feel like we’ve earned the wealth that our portfolios portray — inherently you can see this is a fragile state. Let’s use an example of someone crossing the arbitrary millionaire threshold to draw this out. Ignoring any real estate wealth, or personal assets, let’s assume someone has $990,000 invested in the market. The next trading day, the market’s up and they cross the valley into millionaire status. The following day, the market’s down — their values fall to $980,000. They’ve “lost” over $20,000 and can no longer claim the coveted moniker of millionaire.

This simplified example illustrates how loss can be felt as values change, and it comes from a place where our focus is on the wrong frontier. Rather than viewing the pinnacle of your pile of pennies as the value with the last penny on top, see it as a dynamic range.

Build yourself a value buffer.

Whether it’s 5%, 10%, 15%, or 20% of your assets, having your financial decisions based around less than what you currently show, is a way to build a robust financial life.

If you fix this buffer in your mind, you will see a percentage of your assets as not fixed, but dynamic — things that you expect to go up and down a lot — things that you don’t mentally count as yours. It doesn’t stop your account from going down, but it allows you to recognize an ever-present component of investing — volatility. These are the small and large fluctuations in your values.

Of course, you can sell the assets and spend the full value of the account, but the purpose of the exercise is to have a safer spot to fix your focus. If you look at the top of the ocean, you’ll see waves constantly gyrating; if you fix your gaze a few feet deeper, you won’t see the dizzying oscillations.

This framework builds you a mental margin of safety.

_{Two quotes on writing:}

Writing cleanses and purifies your mind. Write out what you think about money. What do you know? What are you learning? What’s missing? Document your money journey with words.

_{Three questions on thinking time:}

If you don’t have time to think, you won’t have time to evaluate.

1. What if I scheduled 10 minutes to sit alone and think?

2. What problems am I struggling on that might benefit from me stepping back and thinking through new angles?

3. How can I evaluate my decisions if I don’t spend time thinking through them?

Which question stuck with you? Questions like these are spotlights for the mind. Reply to this email and let me know which one shined light on a previously dark cave.

_{Four lines of poetry for the point:}

Contact Me:

Content ideas, questions? Reply to this email or reach out to me at [email protected]