How to Balance Risk and Regret

The late Nobel laureate Daniel Kahneman spoke frequently of the importance of understanding your future regret. In financial terms, regret signifies how you could feel about current decisions in the future.

In many respects, risk and regret are the same thing. As author Morgan Housel says, “Real risk is the regret (or lack thereof) that might come years or decades later.”

Saving vs. Spending

Risk and regret feature heavily in how you make saving and spending choices. Because you never know exactly how long your money needs to last, you always are trying to achieve a balance between saving and spending. It’s difficult to pinpoint these inputs with precision because of your lifespan uncertainty.

You’ve no doubt heard people say “life is short.” That philosophy can sometimes cause you to overlook poor spending decisions. In reality, many individuals will live to age 90 and beyond. The “life is short” idea can actually become “life is long.” You need your money to outlast your life.

You shouldn’t look at these disparate concepts about life as being contradictory. You just need to find some evenness between spending in the present and saving for the future.

Modern financial life provides plenty of opportunities to use your money in ways that enhance your enjoyment of life. Conversely, the complications associated with money also present opportunities to make your life more difficult. That’s the dilemma; you don’t get one without the other.

Balancing Spending During Retirement

Sometimes we see clients that even though they have dutifully saved for the future, have difficulty spending when their future arrives. Again, it comes down to balance. You don’t want to spend money on meaningless things, but you probably do want to create memories or even nostalgia for yourself and those you love.

Saving for the future helps you form independence and this independence allows you to make choices. Without sufficient savings your choices necessarily become more limited. It might help to think of the actual dollar amount of your savings and investments as providing you that specific amount of independence in the future.

Thinking Ahead

Learning how you can balance risk and regret often brings you face to face with tradeoffs. During your working life you likely have an excess of opportunities to spend money. It’s important to remember however that at some point in the future you won’t be working and your living expenses will be at least partially reliant on savings.

Properly balancing risk and regret helps you adapt to the different ages and stages of life. If you can achieve a reasonable equilibrium between present day stresses and future needs, you’re on the right track.

In order to have some control over your financial future you need money…that is, money you haven’t already spent. Of course, to have money not committed to something you have to save and invest. There’s no shortcut. Start there. Ready for a real conversation?

Disclosure

Apollon Wealth Management, LLC dba J.E. Wilson (Apollon) is an investment advisor registered with the SEC. This document is intended for the exclusive use of clients or prospective clients of Apollon. Any dissemination or distribution is strictly prohibited. Information provided in this document is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product or service. Investing involves risk, and while remaining invested can support long-term goals, it does not guarantee a profit or protect against losses. Advice may only be provided after entering into an engagement agreement and providing Apollon with all requested background and account information. Please visit our website https://apollonwealthmanagement.com for other important disclosures.