The Formula for Good Living and Investing
by David Wrigley, CFA, CAIA, Chief Investment Officer Foresight Wealth Management Making the distinction between what is in our control and what is out of our control is empowering and liberating.
In my mind’s eye, I can still see the vintage, embroidered “Serenity Prayer” picture hanging in my paternal grandparents’ home. The framed cloth’s vivid colors were eye-catching as you rounded the corner into the kitchen, the location of which was no doubt strategically chosen by my Swedish grandmother.
The “Serenity Prayer” states: “God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.” Though most of us have heard this countless times, it contains profound wisdom for both life and investing.
God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.
The Greek stoic philosopher, Epictetus, conceived a similar idea known as the “dichotomy of control,” which states that everything in life falls into one of two categories: (1) things over which we have complete control, and (2) things over which we have no control. In what has become a basic tenet of stoicism, Epictetus taught that our thoughts and actions are among the few things in life that we control. Therefore, we shouldn’t stress over or worry about things outside that realm.
TIn William Irvine’s A Guide to the Good Life: The Ancient Art of Stoic Joy, he takes the “dichotomy of control” and adds an important third category, creating the “trichotomy of control.” Irvine’s third category contains the things over which we have some control. This encapsulates the nuanced middle ground between all control and no control, recognizing that there are many shades of gray. While our thoughts and actions typically combine to create desired outcomes, many things in life are at least partially determined by external factors. For example, the terrific business opportunity in the hospitality sector that launched right before the global pandemic. The perfectly executed marathon training plan that was overwhelmed by having an “off” race day. The couple who diligently planned for retirement to begin in 2008 during the heart of the Global Financial Crisis. Dozens of examples of either “good process, bad outcome,” or “bad process, good outcome” come to mind.
The graphic below from J.P. Morgan’s “Guide to Retirement” applies this same concept to investing. It’s a helpful framework as we evaluate our financial goals. The purple circles are things over which we have complete control, the blue circles are things over which we have some control, and the green circles are things completely out of our control. In our quest for retirement preparation, we control how much we save vs. how much we spend. We also control our asset allocation. Those are the two biggest ones. We have some control over how much we earn. And we have some control over the age at which we retire and for how long we live. Certainly not all, but some. On the other hand, things like inflation, interest rates, government policy, market returns, and exogenous risks like COVID-19 are out of our control. Even though we can’t control the things in the green category, we can prepare for those risks by designing a well-thought-out financial plan. That involves creating an appropriate strategic asset allocation, ensuring sound portfolio construction with ample diversification, and using tools like rebalancing and tax planning in our favor.
If there is something in the “complete control” bucket that is out of sync with our goals, lifestyle, or time horizon, we can – and should – do something about it. For everything else, let’s take some deep breaths, remember the “Serenity Prayer,” and try not to stress over it. That’s a great formula for how to live a good life and how to invest for the long run. Please let us know if Foresight Wealth Management can assist you in reviewing your life plan.
Let’s take some deep breaths, remember the
“Serenity Prayer,”and try not to stress over it. Information presented is believed to be accurate and current and has been prepared from sources believed to be reliable. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the presenter on the date of the presentation and are subject to change. Always consult your financial professional regarding your specific situation. Advisory services are offered through Foresight Wealth Management, LLC, a Registered Investment Advisor with the SEC. Foresight Wealth Management, LLC only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission and does not imply that the advisor has achieved a particular level of skill or ability. All investment strategies have the potential for profit or loss.