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To Hell With "Better Mousetraps"

You need a flywheel. And you need to let it rip.


Take an isolated problem in your life, find an improved strategy to address it, and you've built a better mousetrap.

But not every decision we make in life is independently solved. Investors face a seemingly disparate collection of mousetrap decisions:

  • Should I manage my own portfolio, or get professional help?

  • Which custodian should I use?

  • Which funds should I use?

  • When and how should I rebalance?

  • How do I implement tax-loss harvesting to pay less taxes each year?

  • How do I see my various benefits and accounts (e.g. 401K/403B, HSA, Roth IRA, brokerage account) in one place?

  • Is there a way to confirm that I'm maximizing those benefits?

  • How to ensure that I own the appropriate assets in the appropriate accounts?

If you consider how each relates to the others, you realize it's one big system masquerading as independent units. And if you approach financial planning and investing as a collection of separate decisions made at different times, rather than a cohesive effort designed upfront for success, you'll end up fighting this fight:


Don't collect investor mousetraps. It's tedious and hard to implement.


It also misses deeper, shapeless questions that don't easily lend to narrow solutions.

  • How do I know that a professional advisor won't screw me over?

  • How do I know if a professional is even good at what they do?

  • How do I instill good money habits as a cultural pillar of our family?

  • How can I encourage my kids to not make the same mistakes I did?

  • How do I avoid the allure of thinking I know what the market will do next?

Trust. Emotion. Visioning. Psychology. Behavior. Avoidance.


You can't build mousetraps to be less human. You need systems.


That's why as it relates to your personal finance and investing, I suggest a flywheel instead.


There is no greater force that inhibits financial success than inertia.


Like fitness or dieting, just starting is hard. But unlike fitness or dieting, you only need to address this once. You don't need to keep showing up — you're creating a system, not a schedule.


It's hard to push a flywheel, but once it gets going, the momentum reduces the future effort required. It becomes both a high-torque system and a reservoir of energy.


Inertia goes from enemy to friend.


Those discrete bursts of energy — from selecting an investment custodian, investment philosophy, portfolio implementation and tax-minimization strategy...to potentially trusting a professional (or being accountable to your own management), maximizing the benefits available to you, and implementing guardrails to avoid unforced errors — those bursts now operate in unison.


Grease the skids. Embrace "I wish I had done this earlier" as cathartic, liberating, and exciting all at once.


When I onboard new clients, I tell them that over the next few years, 70% of our effort will be in these first few months. It should be the same with or without an advisor. Designing elegant systems is hard because every investor has different mechanical inputs, but it's both doable and worth doing.


On describing how he would chop down a tree in six hours, Abraham Lincoln famously said he'd take four hours to sharpen the axe.


Then let it rip.


End.




Addendum


On the flywheel effect, Jim Collins wrote in Good To Great:


The momentum of the thing kicks in your favor, hurling the flywheel forward, turn after turn … whoosh! … its own heavy weight working for you. You’re pushing no harder than during the first rotation, but the flywheel goes faster and faster. Each turn of the flywheel builds upon work done earlier, compounding your investment of effort. A thousand times faster, then ten thousand, then a hundred thousand. The huge heavy disk flies forward, with almost unstoppable momentum.


This is nothing more than compound returns.



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My blog posts are informational only and should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in my posts will come to pass. They are not intended to supply tax or legal advice and there is no solicitation to buy or sell securities or engage in a particular investment strategy.

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