Anchoring

I like to watch people anchor their boat. 

It’s a calculated process: this spot would be perfect now, but things are going to change.  The tide is going to shift.  We’ll be on top of that boat in no time.  The fish might stop biting.  The sun will be over “there” later.    So, we might not anchor at the ideal spot now to maintain the totality of the experience.  People are often cautious to anchor at the best possible spot, thus yielding to inevitable change.

This calculus would serve us well elsewhere.

How often do we anchor ourselves to our highest year of compensation, make plans based on a banner year of portfolio performance, or assume a certain lifestyle will always persist?

I’m sure you’re like me in that as a decade goes by, the overlap of what you expected and what really occurred share little in common.

Yet, if we must identify one thing the ego hates most, it’s change and surrendering control.  So, naturally, planning for a compensation change, a major portfolio decline, or a downgrade in lifestyle are major undertakings.  Nothing about that is comfortable – anchoring to 2021 market highs and creating expectations, while easier, is largely useless.  The tide always changes.

This isn’t a suggestion to settle.  While anchoring ourselves beneath the peak might lower our expectations, anchoring beneath the peak might also create urgency.  Not a rush-around type of urgency – a stop wasting time type of urgency.

Perhaps COVID did that for a lot of us.  Effectively, the pandemic lowered our expectations of normalcy.

Many of us might have decided we were a little bit asleep at the wheel.  After all, the data seems real on the Great Resignation and the Great Migration.  For life plans we’d once labeled with “eventually” – now have become “what am I waiting for?”

Anchoring at the peak might seem exciting because our lifestyle tends to be better and more financially free. More money in our pockets and high flying brokerage accounts. But, anchoring there can also be the impetus of a life nap.  The tide does change, and the fish do stop biting.

Anchoring somewhere else besides the ideal allows for preparedness and has the potential to create urgency. My observation is that this does not always result in “settled” behavior – more so: stoic and actionable behavior. We function with less surprise and less panic.

The recent geo-political landscape and market tension has provided us another opportunity to re-cast the anchor.

Thanks for reading.

Mitch

See disclosures.