3 Questions for Better Decisions

ByFreeman Linde, CFP®
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“Judge someone by their questions rather than their answers.” ~Voltaire

There are three questions you should ask yourself if you are trying to make good decisions, adapted from a podcast by Carl Richards. These questions help you double-check your provisional decisions. Let’s look at four financial scenarios for each of the questions, and suppose that you’ve decided as follows:

  1. Should I speculate on this investment?
    • Yes.
  2. Should I buy life insurance?
    • Not right now.
  3. Should I complete my estate plan?
    • I’ll do it later.
  4. Should I pull out of the equity market?
    • I think so.

Question 1: What is the best that could happen if I’m right?

  1. The investment could take off, and I could earn 20-30% annual returns instead of 10%.
  2. Save $50/m and enjoy more entertainment.
  3. Save time and money and most likely have time to do it late before I die.
  4. Take a slight “loss” but prevent my money from falling further. And I could get back in toward the bottom and make a killing!

Question 2: What is the worst that could happen if I’m wrong?

  1. The speculation could go to zero, and I could lose every dime I committed.
  2. I could die. Leaving my grieving family in a tight pinch with no money.
  3. I could die unexpectedly, and my family would have to sort out the mess and pay lots of money to attorneys and taxes.
  4. I pull it out at what turns out to be the bottom, and as a result, I leave myself out of the market. Consequently, I miss out on gains and am left wondering when to get back in.

Question 3. Have I ever been wrong before?

  1. Yeah, last time. This time feels different. But I was confident last time too.
  2. I was wrong about my career field and never thought I’d end up here.
  3. I said I’d never live here. But here I am.
  4. I think I did this in 2008 too. But I don’t think I got in while it was low. It was still too uncertain. Pretty sure I lost a bunch on that.

Conclusion. How might your decisions change?

  1. I will decrease the amount I commit to this only to the amount I’m willing to lose and put the rest in my equity investment plan.
  2. It’s only $50 per month. I’ll suck it up and get the coverage.
  3. It will cost my children less in inheritance for me to get my estate plan done than it will if I do nothing. I better get it done.
  4. I know that I will have great long-term returns if I leave it alone—time to start believing that. I’ll leave it alone and stick to the plan.

Tune in to the podcast for the full discussion.

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This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.

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