By Dr. James M. Dahle, WCI Founder
In the Book of Mormon, there is a story about a fellow named Lehi who had a dream. In the dream, he had to traverse a strait and narrow path to arrive at a tree that represented eternal life. Along the way, there were many “mists of darkness” that could cause him to lose his way and temptations from those not on the path, trying to convince him to leave the path and wander off. There was an iron rod along the way to assist him in staying on the path.
By staying the course down the strait and narrow path holding on to the iron rod, Lehi reached his goal. Perhaps it looked something like this:
In the Odyssey, perhaps the greatest mythical story ever about staying the course, there are two similar stories. The first is when Odysseus and his crew have to pass between the massive whirlpool known as Charybdis and the six-headed monster known as Scylla. The lesson is that sometimes damage must be taken but that a middle course will minimize it.
The second story is more widely known, and it involves the Sirens, creatures that were half bird and half woman (or in some versions, a foul creature disguised as a fair-looking mermaid) who had such a seductive singing voice that it would tempt sailors to either jump overboard or sail into rocks where they would be shipwrecked (and then presumably be eaten by the Sirens). In the tale, Odysseus wants to hear the singing, but he knows it will lead to his certain death. So, he comes up with a scheme to hear the singing but avoid dying. He stops the ears of his crew with beeswax and has them tie him to the mast and swear not to let him go no matter what he does or says. In this manner, the crew stays the course despite Odysseus's instructions during the ordeal.
You Must Stay the Course!
All of these stories emphasize following a carefully charted course, no matter what might be on each side of that path. Perhaps the most important part of long-term investing is staying the course with whatever reasonable investing plan you have chosen. Jack Bogle said:
“Stay the course. No matter what happens, stick to your program. I've said ‘Stay the course' a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you.”
Why Is It So Hard to Stay the Course?
Yet time after time, we see investors struggle to stay the course, resulting in higher taxes, higher transaction costs, lower returns, and even outright scams. This might even be the reason why doctors have their reputation as terrible investors, as evidenced in this tweet.
This tweet received many more likes than the tweeter had followers! Why is it so hard for investors—and doctors in particular—to stay the course with their investing plan? I can only speculate, but here are my best guesses.
#1 Humans Crave Novelty
I was talking with one of my partners who freely admits he enjoys “collecting” Vanguard mutual funds in his taxable account. He loves them all and so he buys them. He's got a dozen already and keeps buying more. He even decided to dip his toe into private real estate with an investment in the Fundrise private REIT. Despite my best efforts to tell him he needed a long-term plan to follow, he finds saving and investing enjoyable and exciting. As humans, we crave novelty. We want to go to new places, see new entertainment, meet new people, and invest in new stuff. Unfortunately, following that natural desire is not a great investing technique. It certainly leads to additional complexity, it generally leads to additional costs, and it probably leads to lower returns.
This desire for novelty is evidenced by the sheer number of popular alternative investments out there. While an academic case can be made to include an “alternative” asset class or two while building your portfolio, there is no justifiable argument to include five, 10, or more—much less to switch rapidly between them. Take a look at the interest in the asset class du jour in any given year. It might be precious metals, cryptocurrency, non-fungible tokens, ARK Funds, special purpose acquisition companies, technology stocks, art, commodities, private equity, or hedge funds. It is even easier for doctors to fall prey to these alternatives given that they easily qualify as accredited investors and thus are actually allowed to invest in them.
Some people just love making deals (a term economists call transactional utility, where the transaction itself brings joy)—even if it isn't a good long-term investment.
#2 FOMO
Humans are social creatures, and we fear missing out on what other people are enjoying. We want to be like everybody else. This desire might peak in middle school, but, for most of us, it never goes away completely. This is probably why socially awkward introverts often make the best investors. Not only are they likely to save more money (what's the point of going out and spending it when you hate doing so?), but they are far less likely to be influenced by the actions of others. When we hear about our friends or people we don't even know on social media making money hand over fist, we want to do what they're doing—even if, on careful inspection, what they are doing is a terrible long-term plan. Combine this natural FOMO with people who lie, tell half-truths, or don't even know how to accurately calculate a return, and it can cause us to chase all kinds of “sirens” and wander off into the “mists of darkness.”
A lot of the interest in real estate as an asset class among physicians in the last five years is driven by this. Those who make money by selling you investments or courses to teach you how to invest stoke that FOMO as best they (we?) can. I have had many doctors confess to me that they feel serious FOMO every time WCI publishes something about an asset class they don't already have in their portfolio.
But remember what Rick Ferri has said:
“The truth about index funds must be repeated over and over because lies are constantly being told. Index funds are not evil, they are not destroying the markets, and will not blow-up your portfolio. To the contrary, they have outperformed most active investment strategies and continue to save investors billions of dollars per year in fees.”
Is buy-and-hold index fund investing boring? Incredibly. Is there any reasonable argument out there against it as a reasonable long-term investing technique? Not one.
#3 Hard Work and Patience
Despite how simple investing can be, it takes a surprising amount of work and patience to do it successfully. It's easier to just bounce around from one investment to another than it is to formally design an investing plan. It also takes an almost superhuman amount of patience to watch some of your investments do poorly for literally years as you know they must in any diversified portfolio/long-term plan. Most of us have a 60ish-year investing horizon (30-year career, 30 years in retirement). That's a lot of staying the course, and it's hard.
Hold to the Rod
Luckily, we're not alone and left to our own devices. Like Lehi, we can follow an iron rod. In this case, our iron rod is a written investing plan. When the mists of darkness come and people try to tempt you from the strait and narrow, you can simply refer back to your plan. Heck, your plan, like ours, can even have a provision in it that requires you to wait three months before making any portfolio changes. (Amazing how few changes you will still want to make three months after having a hare-brained idea.) How can you obtain a written investing plan? Well, there are usually three approaches.
#1 Write It Yourself
If you feel qualified by virtue of having read extensively about investing, experienced it yourself, and spent lots of time on forums answering and asking questions, you can simply write the plan yourself. That's what I and many other hobbyists have done. It might be the most time-consuming way to do it, but it is certainly the cheapest.
#2 Take Fire Your Financial Advisor
I know most white coat investors are not hobbyists. Heck, according to a recent survey, half of doctors don't even want to have 10 out of 10 financial literacy. They just want to reap most of the benefits of being a good investor without having to do too much work. For those folks, we designed a best-selling online course called Fire Your Financial Advisor that takes you by the hand, teaches you what you need to know (and only what you need to know), and then helps you to write your own financial plan. Yes, it costs a few hundred dollars, but given the value of your time, it's an incredible value compared to having to learn enough on your own to do this task. It's also an incredible value when compared to the cost of the third option below. We even have a version that you can use your CME funds to buy, called Financial Wellness and Burnout Prevention for Medical Professionals. It costs more before tax, but not after tax, especially if you have CME dollars you're not sure what to do with.
#3 Hire a Professional
If you're really not a do-it-yourselfer or simply want the reassurance from a pro that it is being done right, we keep a list of recommended financial planners who have been initially vetted by us and are continually vetted by white coat investors in an ongoing way. They are all fee-only fiduciaries. You can simply hire one of them to write a financial plan for you. You can just have them draft it up for you to follow, or you can hire them to implement and carry it out as well. This does not require very much time or expertise on your behalf, but it is definitely the most expensive of the options. Expect to pay a four-figure amount for your financial plan.
Follow Your Plan
Once you have an iron rod, you need to actually use it and follow it. It will lead you between Charybdis and Scylla. Then, when the investment sirens start singing about Bitcoin and SPACs, you can either do as Odysseus did and lash yourself to the mast or, if you're really smart, be like his crew and stop your ears with beeswax!
In my experience, beginner investors struggle to stay the course at market bottoms. They stare into the abyss of Charybdis, panic, and sell low. Intermediate investors, however, struggle more at market highs. They fear the market must soon go down, and they need to sell before it does. Or they start seeing Sirens in other asset classes doing even better than their investments, get FOMO, and jump overboard just in time to drown and get eaten.
Advanced investors, however, always stay the course. They may never get to hear the Siren song, but they will successfully reach their waiting lover and comfortable home in Ithaca.
What do you think? Why is it so hard for investors, especially physician investors, to stay the course? What do you do to help you follow your plan when times get tough or when it seems others are leaving you behind? Comment below!
I’m out of residency a couple years, trying to stick to the basic WCI financial principles, but not a week goes by without these mists of darkness (as you call them) clouding my better judgement. From a friend at church: “It was my in-laws who told us we had to get a Tesla, it’s the best car. You should get one.” From a doc in my group: “I’m buying bitcoin when it gets down to (fill in the blank).” To my wife’s new doctor wife friends: “That million dollar home has just everything you need.” Next time I’m wrapped up in a conversation with a multitude of docs pointing their finger towards their latest real estate plans or my wife is sent another Redfin listing of a home that’s far too grandiose I’ll remind myself to hold to the rod lest I end up being the one in the great and spacious building.
I love the use of timeless ancient wisdom to guide us. Thanks for sharing this perspective.
Several colleagues and friends have been panicking about recent stock “losses.” I didn’t even know about it so I must have wax in my ears. When I did look up the market results I saw stocks are the same price as a year ago despite paying dividends. Where’s the crash? I scratched my head and reinserted the wax.
My last comment is that despite that tweet, I know a lot of excellent physician investors. That may not be surprising given another quote in this post: “socially awkward introverts often make the best investors.” HA
“Enthusiasm is common, endurance is rare”
Great article and great points. The key for me is creating small habits that build into big results. Trying to bite of more than you can sustainably chew is a recipe for losing the path.
“This is probably why socially awkward introverts often make the best investors.”
I feel both complimented and called out
This comes at interesting timing. I own my own practice, established a 401(k) HS/PS plan, and max it out ($58K). I am fortunate enough to have additional funds to invest in taxable. I recently signed up for PIMD’s PREA course. I am excited to learn more about the nuts and bolts of syndications. I do not plan to change my 401(k) investment approach, however I do wish to invest in RE syndications/ private funds. Is it FOMO? Is it performance chasing? I struggle with this at times. Would my money and time be better spend indexing? Bogle, Ferri, Dahle, Buffet (and others) have explicitly recommended indexing all the way. My draw to RE investing is the additional diversification I receive in a proven asset class. Hopefully I don’t prove to be foolish.
I’ve never heard Bogle or Buffett say a thing about avoiding real estate syndications.
I have no idea why you’re saying I’m against them either. I’ve got 15% of my portfolio into them.
I don’t Rick Ferri is a fan though. That’s certainly fair to say.
https://www.whitecoatinvestor.com/private-real-estate/
Fair enough. But Rick Ferri has told me that although real estate syndications and small value cap stocks are not required he can make a strong argument for including them. They likely provide excess return and are underrepresented in public market investments. See his “Total Economy Portfolio.”
He actually encouraged me to increase my real estate syndication investing (with a cap at 25% of my portfolio and perhaps $100k maximum per deal).
If you sin, sin just a little. I like periodically sinning with only 1-2% of my portfolio, not even close to the 5% play money rule.
On thing that keeps me on track is remembering that loss of principal will substantially delay your FI date.
Unfortunately we live in a financially illiterate country and world but indexing is thriving which means more investors are learning the superior proven course
I came across a nice online PDF- “HOW TO RAISE YOUR CHILD’S FINANCIAL IQ”
Take a look and as well “IF YOU CAN” by Bernstein, another online PDF
In terms of how-best-to-write-a-financial-plan:
We were kind of in the woods before 2019, oddly very similar to your colleague just happily collecting a bunch of Vanguard index funds with no clue about taxes, maximizing available tax-sheltered options, etc. (Vanguard makes this strategy weirdly enticing with this portfolio analysis button that would return with prompts like “This analysis shows your portfolio may be underweighted in European corporate bonds [or some other arbitrary sector that we had no business seeking out…]”
In 2019, we found a fee-only advisor who charged us I think $2,800 to look at our assets and write a financial plan for us. I think he probably put an honest 5 hours of work into the plan + meeting with us twice…. but: he still completely neglected important (and in retrospect obvious) retirement strategies like backdoor Roth. He also put like 20% of our longterm assets (including half of our tax deferred retirement) into 0.01% yield Vanguard MM accounts that seem a little odd in retrospect. He wasn’t a bad guy–he’s a CPA and had no ulterior motive other than possibly laziness. If we would have done everything he said forever, we’d probably end up at 90% of where we could have been with the WCI.
But if I could do it again… I would have either read all the content on this website or (probably more efficiently) enrolled in the Financial Wellness course with some CME funds (which to be fair I never actually did so can’t review). Good luck!!
Funny how much you can pay for less than perfect advice huh?
As Andrew Tobias says “TRUST NO ONE WITH YOUR MONEY”. Learn this very simple stuff
Great post Jim.
“socially awkward introverts”
Any investing insights into a socially awkward extrovert like myself? 🙂
I might already know the answer having been a proud owner of a whole life insurance policy…
You seem to have missed an equally important (if less art-inspiring) example from the Odyssey: Penelope “stayed the course“ at home and dealt with all of the thieves and rascals while Odysseus was (for a good chunk of the 20 years) sleeping with goddesses. And although he wisely took precautions with the Sirens, his antics were most certainly a form of FOMO.
Literary analogies aside, I greatly appreciate your post.
For myself, I find that staying the course has become more stressful as we approach FI due to the comparative meaning of market swings. Our asset allocation is not overly risky, and I am not tempted to deviate from our investing plan. Nevertheless, it can be hard to watch a 2% down day wipe out an entire year’s worth of current saving.
This is particularly difficult for those of us who are not thrilled with our jobs right now. Having the discipline to stay the course doesn’t banish the demoralizing thought that “another year” just got tacked on to the timeline. (In my own case, unfortunately, the cost of leaving is prohibitive.)
It’s rather like being at mile 20 of a difficult marathon. All of the training and hard work gets you to that point, but it’s the last 10K where perseverance and mental fortitude are really needed. Your perspective changes when every hundred feet seem like a mile, and you lose the ability to zoom out. Well-meaning spectators who shout “only X miles to go!” from the sidelines do not realize how awful that sounds to someone struggling to put one foot in front of the other.
So for me the struggle is not so much staying the course with disciplined investing as it is staying the course through difficult circumstances while you wait for your patience and hard work to pay off. Not unlike Penelope.
Great insight on Penelope.