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_{Exploring psychological percentages, mistakes, and decisiveness}

Happy Thursday! Thanks for reading Intentional Dollar — where we look at old money ideas through a new perspective.

What’s inside?

• One tool to experiment with

• Two quotes from others

• Three questions to dig deeper

• Four lines of poetry for the point

Disclaimer: This is not investment advice. These weekly posts represent my simple thoughts, a few quotes, and some questions — for educational purposes only.

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_{One tool to experiment with:}

Psychological Percentages:

There’s a subset of homeowners with mortgages close to 3%. 

This rate is so unbelievably low that it’s hard to comprehend and quantify what it means. But in a historical context, it’s about half the average “normal” mortgage rate.

And it’s a steep fall from where mortgage rates are now. 

These low rates and other monetary stimulus created an inflation monster that the Fed just recently tamed. They accomplished this with a new interest rate regime, one that brought cash returns and risk free investments yielding 5% or more.  

Here, we have homeowners paying debt with a 3% sticker while simultaneously owning the optionality to earn 4-5% risk free.  

It’s a great scenario, and one where the clear, uncontested, logical conclusion is to deploy all excess cash to investments, right? 

The math says yes. And this alone is enough for some clinicians to stand on their hills shaming anyone that deploys an extra dollar to debt. 

But this cold, logical reasoning ignores the psychological percentage. Or, the idea that the unseen mental cost of carrying debt, or spiraling out about the what-ifs of leverage, is a real financial consideration that should be in your equation. 

In order to extract this percentage, you have to be in tune with your psychological wiring. You’ve got to know yourself. This isn’t something you’ll gather from the oracle on the hill.

In a debate, the math wins on safety, liquidity, excess returns, and optionality preserved. But there’s one category math falls short: peace of mind. And it stands as our psychological percentage plug. 

Now, our old formula comparing raw debt cost against investments has a twist: cost of debt + psychological percentage vs investments. 

Again, determining this percentage is up to you. But I’m here to advocate that it holds a nonzero value, and must be a consideration in your decision making. 

At the end of the day, money is a tool to amplify life. 

If carrying debt makes your life marginally more miserable than not carrying debt, the decisions you make with your dollars should reflect this. 

This said, to make a robust decision, you have to consider risk. To spend all our cash and pay down debt because we’ve assigned a high psychological percentage is probably not a good decision.

As a capital allocator, keep the financial and psychological cost married in your mind. 

_{Two quotes on mistakes:}

Mistakes are wise teachers; ours and others’.

_{Three questions on decisiveness:}

1. Where am I a bit like the donkey that dies of hunger and thirst from looking back and forth at the water and hay?

2. Instead of trying to optimize between the choices, what can I gain from the speed of decisiveness?

3. Is this a reversible or irreversible decision?

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:}

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

Disclaimer: This is not investment advice. These weekly posts represent my simple thoughts, a few quotes, and some questions — for educational purposes only.

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