Playing Not to Lose

To grow wealth, it's important to express a healthy fear in your savings rate. Not your portfolio.

Sean Fitzpatrick was captain of the famous New Zealand national rugby team. He discussed how the high expectations around the team allowed them to prepare at a high level. The All Blacks culture carried a healthy fear or not being good enough.

'It is the fear of not doing it properly,' says Fitzpatrick, 'and what does that do? It makes you prepare properly. And all successful teams, whether it be in business or in sport, the ones who prepare properly are the ones that normally win.

'The key,' Fitzpatrick tells the audience, is to understand that there is a world of difference between fear of feedback or failure and harnessing that fear to positive effect.'

Fear of a deep depression. Or job loss. Or an accident. Or an illness. The uncertain future can motivate us to save money today. Ignoring these possibilities keeps more focus on the here and now, and deprives us of claim checks on the future. Hardship is likely for everyone at some point in our lives. Harness these fears to positive effect, in the form of saving money.

But one cannot simply save their way towards significant wealth, or even fund a multi-decade retirement. You need capital markets at your back to compound those savings. Expressing fear in a portfolio by choosing to not invest will have moments in time that seem astute. But those moments tend to be short-lived, and overridden by the historical long-term returns that markets provide. Over time, choosing to not invest has proven to be far more costly than investing in a high quality, diversified portfolio.

But it's hard. We deal with 'loss aversion' on a regular basis. The process of investing (capital markets going up and down regularly, sometimes by a lot) goes completely against human nature. We're inclined not to lose more so than just playing to win.

Danny Kahneman cites research from the University of Pennsylvania in Thinking Fast and Slow. 

'Pope and Schweitzer reasoned from loss aversion that players would try a little harder when putting for par (to avoid a bogey) than when putting for a birdie. They analyzed more than 2.5 million putts in exquisite detail to tests that prediction.

They were right. Whether the putt was easy or hard, at every distance from the hole, players were more successful when putting for par than for birdie.'

Play to win with your portfolio. Taking on investment risk responsibly is usually worthwhile.

Pair that with saving like pessimist, and you have a great foundation for building log-term wealth. 

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^{Source: Legacy (James Kerr) Thinking Fast and Slow (Daniel Kahneman)}

^{The content in this  article was prepared by the article’s author and is not intended to provide specific advice or recommendations for any individual. Voya Financial Advisors does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors.}