The older I get, the more I realize what a powerful impact my expectations—or lack thereof—can have on my state of mind. Last weekend was a great example. A friend and I had scheduled a dive trip on a boat called “Truth” (no, I am not making this up. Our destination: San Miguel Island, just off the coast of Santa Barbara. However, when we booked the trip, we were told quite plainly that 1 out of 3 trips to the island are rerouted to other nearby islands due to weather. Luckily, the Channel Islands (of which San Miguel is one) include more than a handful of other beautiful spots, so when we went to Santa Rosa and Santa Cruz instead, there was peaceful acceptance—not disappointment. I wasn’t attached to the idea of getting to San Miguel; I had no unmet expectations. “Truth” delivered on its only promise: to take us somewhere we’d never been. We had a fantastic experience. But I have to wonder... would I have enjoyed it less if I’d had my heart set on seeing San Miguel?
It’s possible that my insight has less to do with getting older and more to do with what I’ve been learning in my Sangha group, a study of Buddhist thinking where we’re working on discovering compassion and happiness by training our minds to shift the focus from ourselves to others. Perhaps my newfound interest in Zen has already given me a whole new perspective on the difficulty of expectations—in life, in relationships and, yes, in investing.
As I’m sure you heard, the Fed met last week to decide whether or not to raise interest rates. What I found most interesting about the meeting wasn’t the actual decision to keep rates where they are (it was a given that the Fed would either raise rates just a quarter percent or stay put), but the market’s response both pre- and post-announcement. How did the market react? It didn’t. Sure, there were some small fluctuations in the market in the days leading up to the meeting, but nothing like we’ve seen recently when investors were anticipating a rate hike. I believe the reason for that relative calm was the lack of expectations. There were no surprises, so the waters were calm.
Unfortunately, in situations when our expectations aren’t aligned with reality, even the littlest changes can often feel like quite a storm.
Before my dive weekend, I met with my client Laura. She was facing a financial decision: Now in charge of her aging parents’ finances, she asked me for help deciding if she should continue to pay premiums on her father’s life insurance using the policy’s cash value or pull out the cash to reinvest the money elsewhere.Her father is 88, and the death benefit of the policy is $1.5M. I did the math and recommended she maintain the insurance policy, but her expectations told her otherwise. First, she stated that she expects her father to live to the ripe old age of 102. If he does, she would need to pay the policy premiums, and some of the cost would not be covered by the available cash value of the policy. Second, she said she expected she could earn at least 8-9% on the reinvested assets, which would exceed the $1.5M payout in 10+ years. Were her expectations of dad’s life and investment returns realistic? Probably not. With different expectations, the decision would have been different.
Years ago, I had a client with the opposite expectation. Allen was 45 years old when we sat down to build his retirement plan. As part of the process, we decided to work from the assumption that he would live to be 87. We spent the next two hours putting together a solid, long-term plan that included some needed catch-up contributions to his IRA. All the pieces were in place, and we were both happy with the final plan. But 10 minutes after he left my office, my phone rang. Allen had changed his mind. “Can you refigure the numbers? I’m pretty sure I’m only going to live to be 78.”
Of course, longevity isn’t the only expectation that can steer us in the wrong direction—or rock our boat when expectations are unmet. If I go to Vegas expecting to spend $250 of my “fun money” at the casino, I’ll still be smiling when it’s gone. And if I happen to win $50 or $100, I’ll be overjoyed. Why? Because my expectations were exceeded. In contrast, if I bought a house in 2006 for $650K expecting to sell it at a profit in a few years, I would have been devastated to see its value drop to just $450K by 2012. My perspective in both cases is rooted in my expectation of the outcome.
Expectations turn up everywhere. Investing. Relationships. Life. In diving, there’s a phenomenon called a “surge.” If you’ve spent any time in the ocean, you’ve probably felt it yourself: when the waves hit the rocks, the energy creates back and forth movement in the water. If you’re swimming, that force can push you away from where you want to go. Experienced divers know that fighting the surge is impossible, and if you try, you’ll end up wasting valuable energy. But if you ride the surge—relaxing with it when it pushes back, and then swimming with it when it propels you forward—it can be a beautiful thing. You may feel like a tempest-tossed, but you’ll eventually end up right where you want to be. How liberating.
When it comes investing, managing your expectations is key to keeping your emotions at bay when the market or your financial situation fluctuates, and it’s vital to staying on track toward your long-term goals. The best way to do that: have a plan based on research and knowledge—not just your gut—so you can trust that “riding the surge” will, ultimately, get you where you want to be. And if you find it difficult to set a course and free yourself from expectations, we can chat. As always, I’m here to help.
Speaking of expectations: Did you happen to see Stephen Colbert’s commentary about the lopsided expectations for Monday night’s presidential debate? In his words, the expectations were that Hillary had to be “confident but not smug, knowledgeable without being a know-it-all, charming but not affected, commanding but not shrill, also likable, warm, authoritative—and not coughing. Meanwhile, Donald Trump had to not commit murder…on camera.” Oh my. Here’s the clip if you’d like to bring a little levity to the less-than-light quandary we’re facing on November 8!