Major Decisions

I’m constantly searching for answers to the big questions in my life.  While I haven’t found the answers yet I continue to search in ancient religious texts, academic papers and recently I find that blogs and podcasts are a good place to look.  One of my favorite Podcasts is Invest Like the Best.  A recent episode talked about how we don’t have enough data to make the three major decisions in our life.  Let’s check out how we can improve each major decision. 

House

Part of the American dream is to own a home.  We don’t question the belief that when we reach a certain we age we should buy a house no questions asked.  James Altucher has written extensively about why buying a house is a horrible idea.  I wouln’t go that far but I do wish I had more information before I bought my first house.  In retrospect I should have been concerned with the overwhelming consensus opinion of just do it because everyone else is.  That is against everything I have learned as an investor and as a parent.  There are new tools that can help us make better real estate decisions.  Zillow has an algorithm that estimates the value of a specific house and charts the historic value too.  This is helpful data that doesn’t fall under your agent’s Caveat Emptor standard.

Marriage

I grew up in the South where people married at an early age.  My parents married at 17 and 18.  They are still married today.  Are they an anomaly or should we all marry our high school sweet heart?  Statistics show that over 50% of marriages end in divorce.  Flipping a coin doesn’t sound very romantic.  Social scientists have studied marriage extensively.  Their conclusions read like a business consultant’s report citing many items but not reaching a definitive conclusion.

401k

On your first day at your new job there will be a stack of papers you need to fill out.  In the stack will be your medical plan but also your 401k elections.  When companies shifted from defined benefit plans to defined contribution plans they also shifted the investment reposibilty to us. Our 401k should grow to be our largest asset if we structure our portfolio well.   Our education system unfortunately has has failed us when it comes to financial literacy.  Therefore we need to educate ourselves before we check any 401k boxes. I would start by reading Peter Bernstein’s Against the Gods and complement it with Ben Carlson’s blog.  I wouldn’t use the conflicted training from your new company.  The decisions you make will teach you numerous enduring leassons that can be used with your taxable portfolio as you make and save more money over time.  Specifically it can teach you the power of long term compounding and the difference between active and passive investment solutions.

We suffer from a lottery effect belief that hinders all of these major decisions.  There is no pot of gold at the end of the rainbow but that reality won’t stop me from looking for the pot or from buying the next Powerball ticket when the jackpot reaches $500 million.