February 2023
Beyond Amazon, access to all kinds of goods (which in prior generations would have seemed exotic) are available for most of us at our fingertips and don’t require us to travel thousands of miles to procure them. For example, Zeihan illustrates that at the beginning of the 20th century, the average American grocery store carried roughly 200 different varieties of food items. At the beginning of this century, he estimates it at close to 40,000.
This instant gratification has become the new norm in which we live our lives. Literally, at the click of a few buttons, we can have nearly anything we want as long as we have a few shekels in our bank account. While there are tremendous benefits that come along with economic progress, there are also dangers that can inhibit our long-term success. And when it comes to investing, it is rarely a good idea to default to short-term gratification over discipline and values-oriented decision-making.
As we know, dopamine is released in the brain in anticipation of a reward. It’s that short-term chemical cocktail high we get from food, shopping, and any other activity we enjoy. We are inundated with 34 GBs of data, or approximately 105,000 words, in an average 12-hour period every single day—that is a lot of information. As a result, the human brain relies on shortcuts or heuristics as a way to decide what information to pay attention to and what to discard. This is why headlines get so much attention. Our brain can only handle so much information and the media know it. So they frame information to be catchy and dramatic, which just continues to play into our natural tendencies.
Did you know you have two brains? Well, perhaps a better way of saying it is that your brain has two different operating systems. Daniel Kahnemen’s Thinking, Fast and Slow does a great job of differentiating the two functional processing systems of our brains. System 1 operates automatically. For example, when driving home from work, how many times have you left the office thinking about what you were going to cook for dinner, or that unfinished email? Before you know it, you’re home and you don’t remember the drive there. You can thank the System 1 part of your brain for getting you home safely. System 2 is used for more complicated decisions. If I asked you to multiple 79 x 264 without a calculator, you’d be using system 2. The answer is 20,856. As you can imagine, System 2 requires more brain energy. Because we are hardwired for survival, and saving energy is part of how we survive, our default setting is to rely on System 1 as much as possible. With that said, financial planning and, as an extension, wealth management require using System 2.
One of the behavioral biases we often deal with is called hyperbolic discounting. It’s the notion that you tell yourself that you will be better or more disciplined in the future at doing something, but you give yourself a break today. Like, I know I should be going to the gym, but I’ll start next week. Or I promised myself I would add to my 401(k) but I’ll start next paycheck. In our modern world, which is wired for instant gratification, it’s not too hard to see how challenging it can be to stick to a “burdensome” financial plan and that just the action of pushing the “buy it” button on my iPhone makes me feel all warm and fuzzy inside.
What is the solution? First, it’s helpful to just acknowledge the nature of the world we live in and the realities of our biology. And if you don’t have the willpower to ignore the noise and take a disciplined DIY approach, it becomes that much more important to have a partner helping you create a financial road map and vision of what you want to create in your life. Wealth advisors help you better balance your immediate needs/wants with longer-term goals, like saving for retirement, designing a portfolio that aligns with your goals, or making strategic decisions for your financial well-being.
While it is biologically difficult to ignore our desire for instant gratification, it is necessary to do long-term planning if you want to ensure you and your family are positioned for financial success. And at Morton, our goal is to be your trusted partner so that you can enjoy life today and feel confident in your plan for the future.
Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.
