We like to think that we can approach our financial decisions objectively, using logic and spreadsheets and come to a “neat” solution that will satisfy all of our financial goals. We like to believe there’s a “right answer” to our financial questions that any reasonable person might uncover. However, the reality is that even the most knowledgeable minds in finance sometimes allow emotion to shape their financial decisions.
I recently came across a story about Jack Bogle that I had never heard before and, honestly, makes me like him that much more. In case you don’t know, Jack Bogle founded the Vanguard Group, which provided the average investor with the opportunity to invest in index funds for the first time. Bogle adamantly believed that index mutual funds were preferable to active mutual funds because index mutual funds preform just as well as (or better than) active mutual funds, but at a much cheaper rate. This belief formed the foundation of the Vanguard Group and represented a significant part of Bogle’s life’s work.
While I knew this part of Bogle’s story, what I didn’t realize was that one of Jack Bogle’s sons, John Bogle, following in his father’s footsteps started his own investment group, Bogle Investment Management LP, in 1999. John serves as a manager for one of the active mutual funds. Jack Bogle—the man who is considered by many to be the father of index investing, the man who spent years promoting the superiority of index investing as opposed to active management in mutual funds—has a son who serves as an asset manager at an active mutual fund. In other words, the father-son financial duo ended up on opposite sides of the investment spectrum. To make matters more interesting—and this is where the story piqued my interest—Jack has actually invested some of his own money in the mutual fund that John manages.
Liam Pleven of The Wall Street Journal wrote a piece on Jack and John’s relationship, and, naturally, Pleven questioned the elder Bogle about his non-index investment in Jack’s mutual fund. Pleven quotes Bogle’s response: “‘We do some things for family reasons,’ he says. ‘If it’s not consistent, well, life isn’t always consistent.’”
Bogle makes an important point here about the way we invest money.
While consistency and prudent decision-making are important for helping to establish and achieve financial goals, there are human elements as well. We often make financial decisions based on emotion and relationship; it’s not all math and logic. In fact, sometimes our personal financial decisions, do not make the most “financial sense” because our circumstances are a bit more complicated. The reality is, however, that the way we invest and spend our money reflects and shapes our lives. Sometimes it makes sense to hold more in cash because it makes you feel more secure even though the opportunity cost could be significant. Sometimes moving to a different neighborhood and a different house to help a loved one makes more sense than living in a house and area that has a lower cost-of-living. Sometimes we invest in our children’s work even when we’re not sure that we’ll see the ROI we might get if we invested elsewhere. At the end of the day, financial decisions can’t be worked out solely on a spreadsheet. Human beings are complex, and the way we plan—and change plans—and use our money reflects that complexity.
In the end, it’s important to realize both logic and emotion have a part to play in financial decision making. We rarely make financial decisions based purely on logic and reason, and that’s okay. We each do the best we can to make wise decisions that protect our investments while also honoring our relationships and circumstances. That’s all anyone can do.
Please feel free to reach out to us at Accruent Wealth Advisors if you have any questions about the content of this article or any other financially challenging issue you may be facing.
Nathan Snow, CFP, is an associate Wealth Advisor at Accruent Wealth Advisors located in Winston-Salem NC. He and his wife Kayla and their 2 children, Lily and Bennett reside in Yadkinville, North Carolina.
