The REAL Reason

What really motivates our money decisions?


Why did you do that?

Or this?

I'm not suggesting you need to hire a therapist or counselor to help you explore your motivation for going to one restaurant versus another.

But when it comes to your money decisions, I believe it can be helpful to dig into the root cause behind some of your choices.

Theodore Levitt, a Harvard Business School marketing professor is known for saying,

"People don't want to buy a quarter-inch drill. They want a quarter-inch hole!"

But I wonder, why would someone want a "quarter-inch hole?"

Let's say it's to hang a picture on the wall.

Why do they want to hang a picture frame on the wall?

Perhaps it's simply to decorate their home. This could be to make them feel better or more organized. Or it could be to impress friends and family when they visit.

Or maybe it's a picture that's particularly memorable. Imagine the picture reminds them of a particularly happy time or experience from the past.

Or what if they've had "hang that #@?&%! picture frame" on their to-do list for days (or weeks)? Finally hanging it up might make them feel like they're in control of their life, even if for just a moment.

We could likely come up with dozens of other possible reasons to hang a picture frame on the wall.

And here's the thing...

Once we know "why" we wanted to hang a picture frame on the wall, we can question the motivation behind even that. At a deeper level.

Perhaps the person grew up in a messy or disorganized home and this is their way of breaking free from that part of their personal history.

Again, this rabbit hole can go quite deep depending on how far down you're willing to go.

Regardless of where the end of your examination of decisions goes, I don't think it's too far a leap to connect the purchase of a quarter-inch drill with something deeper and potentially more meaningful than a quarter-inch hole.

Perhaps you really, deep-down purchased a quarter-inch drill to help fulfill a very specific role in your life or in your mind.

Hopefully by now, you get the idea.

And guess what?

The same concept applies to your money decisions:

  • Why did you buy the Toyota instead of the BMW?

  • Why do you have a comprehensive financial plan?

  • Why do you invest regularly into your 401k at work?

  • Why don't you pay off your credit card balances?

  • Why don't you ask for a raise or promotion at work?

  • And the list goes on...

Do each of the questions above deserve introspection and reflection about who you are as a person and why you do the things you do?

Probably not.

But then again, maybe they do.

Maybe they will reveal something that will give you better understanding and awareness about the decisions you make.

Because ultimately, who you are as a person is really just a collection of the decisions you've made over your life up to this very moment in time.

So next time you're considering a purchase - large or small - ask yourself "why am I doing this?"

And regardless of what the answer is, ask yourself "why" again.

And again.

You might be surprised at what you learn about yourself.

The Problem with Individual Stock Picking

If you know me or have read my writing for any length of time, you'll know - hopefully without a doubt - that I don't recommend, practice, or believe in investing in individual stocks in your portfolio.

The reasons are many.

But one of the most important yet least discussed reasons to avoid individual stocks is because they introduce underperformance risk.

For more on why you might want to avoid individual stocks in your portfolio, read this recent article from Nick Maggiulli.

Most folks I know and work with are far too busy in their lives to commit the time to really researching and evaluating individual investments.

As a result, I suspect many just invest in what they're familiar with and/or what they see and hear in the news.

This can be a dangerous way to plan for your future, so if you insist on picking individual stocks just know that the odds are literally stacked against you.

The Corona Crash - A Retrospective

If you click the "Disclosures" link at the bottom of this and every email letter I send out, you'll see this sentence:

Past performance is not a guide to future returns.

And it's true.

No one can see the future.

And if a financial advisor tries to convince you that they can, run - don't walk - in the other direction.

Since we can agree that the future is unknowable and the past isn't a guide, that doesn't mean we can't reflect upon the past and learn from our decisions, both good and bad.

With this in mind, I suggest you read this article from Ben Carlson.

I think Carlson's article offers some calm reflection on what, at the time, felt like the world was coming to an end. And the stock market would never recover, right?

I'll repeat... the past is not a guide.

But it's important that we learn some history lessons along the way.

Thanks, as always, for reading.

Until next Wednesday,


Retirement Planning for Women

Postscript: For this week's indie music track, give a listen to Pretty Pimpin by Kurt Vile. 🎵

Why indie music? Please read the Postscript of Issue #2 for context.