Why your money decisions should be more like checkers than chess
Focus on the decision right in front of you...
Good morning!
I had lunch with a client on Friday.
She has the bulk of her cash reserves in a high-yield, FDIC-insured savings account that’s currently paying 5% interest.
And she asked me what I thought about moving some of her cash from the 5% savings account to a 12-month CD that’s paying 4.65%?
I asked her why she’d want to do that.
She explained that since the Fed is going to lower interest rates by as much as 1% soon, it means her 5% savings account won’t be paying 5% for much longer.
So she’s thinking about “locking in” a rate of 4.65% for the next 12 months with at least some of her money.
Which might make sense if rates do indeed get cut soon.
And she may be exactly right…
But despite what everyone expects the Fed to do with interest rates, we won’t know until they actually take action.
If they take action.
And we don’t know for certain how interest rates and other markets will react if they do cut rates.
See this illustration courtesy of Polymarket, which describes itself as the world’s largest prediction market:
I’m not suggesting that the above is accurate. Or inaccurate.
I wouldn’t recommend you use a site like Polymarket for anything more than entertainment.
I feel the same way about CNBC.
But Polymarket lets you speculate on a variety of different things.
Again, I’d strongly advise against doing this.
But, here’s their take on the U.S. Presidential election:
And the 2025 Super Bowl Champion:
Click here to see more from Polymarket, but please keep your credit card in your wallet.
Over lunch with my client, I told her I wouldn’t do anything right now with her savings.
We don’t know what will happen or when it will happen.
Or if it will happen.
That’s the funny thing about the future.
This lunch conversation was representative of many discussions I have with clients about all sorts of financial topics.
Should we do this?
What about that?
What if XXXXXX happens?
Honestly, I don’t know.
Because I can’t see the future.
No one can, despite the conviction with which they often attempt to convince you otherwise.
And even if I did know what was going to happen tomorrow, there’s no accounting for how the rest of the market will react.
Instead of attempting to “play chess” with your personal finances and attempting to think 3, 4, or more moves ahead, I’d encourage you to instead “play checkers” and focus on the decision right in front of you.
Or as my UK-based colleague Nick Lincoln writes in his most recent newsletter:
“…we don’t change financial plans until circumstances change; the best-laid plans of mice and (wo)men are destroyed by acting on guesswork.”
Your personal financial plan considers what might happen in the future, but with the knowledge that it will absolutely be wrong.
Still can’t see the future…
Ongoing financial planning is the process of regularly updating and adjusting your personal financial plan so it’s a little “less wrong” tomorrow.
My suggestion: rather than attempting to solve problems that aren’t yet even in the here and now, focus on the small number of things within your direct control.
Once you’ve done that, go outside and take a walk.
Or do something fun with your family.
Read a book.
Live your life.
Because whether you’re thinking about the interest rate on your savings or changing up the investments in your retirement account, make sure you’re making sound, strategic investment decisions that are grounded in your personal financial plan.
And the ongoing financial planning process.
DO NOT make decisions based on the latest news, based on speculative guesses about what may happen and when, or based in fear.
Or greed.
Instead, create a simple, all-weather plan and stick with it.
This includes - among other things - a simple, all-weather:
planning strategy
investment portfolio
tax planning strategy
cash management philosophy
savings plan
spending plan
and any other element(s) relevant to your personal finances
Then stick with it.
Through thick and thin.
It’s simple.
Not always easy, but simple.
Yes, you’ll have to make some changes and adjustments from time to time, but these changes should ONLY be driven by changes in your strategic, personal financial plan.
And your life.
Not based on the way the wind’s blowing, the latest decision from the Fed, or the latest political scuttlebutt.
Financial planning doesn’t rely on complexity or figuring out what will happen and how you’ll need to react.
Unless you choose for it to.
But why would anyone do that?
In my opinion, it’s much more checkers than chess.
Hope you enjoyed a nice Labor Day weekend!
Links & Things
How many ways can you lose money in the investment markets?
According to this Ben Carlson article, there are 15:
After 30+ years as a financial advisor, I’ve seen clients fall prey to all of these.
In fact, I’ve been guilty of a couple of these myself…
Thoughts? Suggestions?
Hit reply or leave a comment and share your thoughts…
Until next Wednesday,
Russ