In a perfect world, we would take our financial mistakes in the past, learn from them, and be better off in the future. Nice and simple.
As you’re aware, we don’t live in a perfect world.
Far too often we see people in our office who are scarred by their financial mistakes. One or two mistakes can change the way folks view their money and make decisions moving forward in the future. Sometimes that works out for them, but often it holds them back from making the most of their money.
As I’m sure other advisors can attest to, we’ve had plenty of people come in who had far too much money in risky, complicated investments during 2007-2008 and ended up losing a lot of money. While that was a mistake, and that bear market was very painful and unfortunate, having too much money in the market wasn’t their biggest mistake.
The biggest mistake for a lot of people was letting those events in the past scar them and hold them back from getting back into the market. There are STILL people to this day who have never re-invested their money even 12 years, and one VERY long bull market, later.
The book I’m currently reading about Adlerian psychology says how too often we focus on conversations that sound like “poor me” or “that bad person” focusing on the mistakes we’ve made in the past in search of sympathy for what happened. Instead of having those conversations, we should be focusing on asking ourselves the question “what should I do from now on?”
The book also makes the case the the past does not really exist except in our mind. It’s a story our present self tells to justify everything we’ve done (good and bad) to get us to this point. While I’m not 100% sure I fully subscribe to that, I think there is a valuable lesson in there.
We may not be able to change the past, but we can certainly change our reaction to it, and we can change what the lessons we learn from it are.
The only things we can control are the decisions that we have to make moving FORWARD. We can’t let our mistakes in the past influence more bad decisions in the future.
The same can be said for constantly viewing our successful decisions through rose-colored glasses. Especially in the markets, more things than we like to admit are left up to chance – not skill. Just because chance happened to work out for us in the past doesn’t mean it will always work out for us in the future.
At the end of the day, we can’t let our financial mistakes give us permanent scars that hold us back forever, and we can’t let our financial successes trick us into overconfidence.
While this can all be filed under the “easier said than done” category. It’s something to work on and keep in mind moving forward.