Change

How do you handle change? Some people put it in parking meters. But everybody copes with it differently. Change can appear in many ways but it is always inevitable. You have memories and life experiences today that you didn’t have 20 years ago. Your appearance has probably changed quite a bit too. Even the matter of which you are made up of is different. Millions of new cells in your body are created everyday, and old ones die off. Scientists say about every 5 to 7 years just about every atom and molecule in your body is replaced. 20 years is enough time for your body to go through several of these cycles. It appears that the only constant in life – is change.

Similarly the person that you will become 20 years into the future will be psychologically different, remember very few of your current experiences, and have a body that only resembles your present one in appearance, but contain none of the same physical matter. So in a way, you have more in common with your next door neighbor today, in terms of memories, experiences, and history, than with your future self 20 years from now.

When it comes to managing money there is no universal guideline or investment portfolio that is right for everyone because each person has different values and financial goals. Warren Buffett, as a long term value investor, once said his “favorite holding period is forever.” But people change, especially over decades. This means your investment strategy will change as well. So how do you reconcile this truth with a long term buy and hold investment strategy? In other words, if your risk tolerance is constantly changing then can a “buy and hold” strategy truly work?

Well I believe the stocks that you buy today should actually reflect your future needs because that’s when you’ll retire and actually be using the money. The best investments that you can hope to buy and hold right now should be more in line with the asset allocation and risk tolerance requirements of who you will become in the future, and not who you are today. Many people make the mistake of creating an investment strategy using the present time as their starting frame of reference. But their portfolio in the present time isn’t what’s important. Saving money and making wise investment decisions are important right now. So instead, they should plan their investment strategy from the perspective of themselves in the future, when it’s actually time to rely on their hard earned nest egg. Keep that in mind when you make your next investment.

However predicting what your model portfolio should look like 20 years into the future isn’t easy. Luckily you have somebody to help you with that. Or maybe I should say somebodies. As Michael from VSauce eloquently puts it, “living once means living many times as a series of similar but technically different people who know each other but only in one direction, and who can help each other but only in the other direction.”

The past you does not know the current and future you, but only the past you can help the future you. Use your knowledge from all the versions of your past to help determine what your financial requirements will be in the future. This is what retirement planning is all about. Start by tracking your money. Know how much you earn and spend every month. Track your stock portfolio performance. Make a note of how the ups and downs of the market make you feel. Learn from your previous money mistakes. And keep in mind that investing is an ongoing personal journey. The longer you keep at it the more financial history you will have, which means the more past versions of yourself there will be to help you make better future decisions. 😉