This post is about making the right financial decisions. To get to that, I’m going to start with a real-life basketball story.

2018-2019 NBA season just wrapped up a couple weeks ago. As an NBA enthusiast, I was glad to see the Raptors brought home their first championship. However, the one thing that happened during the last week of the Finals that everyone still talks about today isn’t about the championship team.

It is Kevin Durant, the Finals MVP from the last two seasons, came back to play Game 5 of the Finals after being out of action from calf injury for a month, only to hurt his Achilles tendon 14 minutes into the game. It’s the type of injury that normally takes a player a year to rehabilitate, which means he may not play at all next season.

After the fact, we can safely presume that KD probably wasn’t healed enough to play. Nevertheless, we also know that Golden State Warriors (KD’s team) takes player health seriously. GSW famously uses fancy monitoring devices on different physical performance metrics to decide whether to rest players, even if players don’t exhibit outward sign of fatigue or injury.

Obviously, GSW’s medical team cleared KD to play injured. KD wanted to play injured. Both parties came to this decision after weighing all the risks. In fact, GSW’s coaching team was told that KD’s original injury couldn’t get more serious even if he played.

At this point, you might be thinking that KD made a very bad decision to come back and play. Actually, I agree. I was solidly in the camp that he shouldn’t have put his health at risk, even before it was announced that he would play Game 5. For a top player at his prime, a huge injury like this means more than just a lost season, but a potential loss of career longevity and legacy.

Nonetheless, I’d guess if you ask both GSW management and KD whether they would have made the same decision based on the same sets of facts they knew then, without knowing the outcome, the answer probably is still yes. They likely had a process to help them make right decisions under different scenarios, and most of the time the process worked.

Until it didn’t according on the outcome. Sometimes you can make all the right decisions based on all the facts you know but still do not receive the outcome that you want.

Right Decisions | Bad Outcome

I think this is true in life, and also in making the right financial decisions.

There are two components to every financial decision. One is knowledge. Sometimes once clients understand certain things they didn’t before, they know the right decisions to make. The other is process. Sometimes clients have all the knowledge they need, or at least know where to look for them, but have trouble turning information into action. As a financial planner, my job is help people acquire and make their own both knowledge and process so they can make the right financial decisions for themselves.

Nonetheless, feeding the right information through the right process doesn’t mean you will never see bad outcomes. There are things we cannot control, the inherent risks in life.

You could do all the due diligence on a house purchase, and only saw the neighborhood turn into flood zone after you bought the property.

You could pick the highest deductible health plan because you never get sick and found out you need an emergency surgery that will come 100% out-of-pocket.

You could have decided to diversify the risk of only holding Apple Stocks in 2016 and lost out on 100% growth in the last 3 years.

You could put cash savings in a globally diversified index fund for the long-term right before the market tanked 50% in one year.

We can only make the decision based on known facts and calculated risks. Sometimes a remote risk blows up. The right decision would take into account the risk beyond your ability to take so you do not become financially destitute, but it does not guarantee you will only get the best outcome.

Most people I work with understand this. What they care about is leaning all the facts, processing all the information properly, and not worry about things they cannot control.

Wrong Decisions | Good Outcome

The problem is, how do you feel about people making the “wrong” decisions, but somehow good outcomes happen for them?

The neighbors who get multiple loans through the equity in their house but somehow their house just keeps growing in value.

The friend who buys lottery tickets every week and hit the jackpot after 20 years.

The coworker who keeps all the vested Apple RSU and never diversified now has a lot more money than you do.

The parents who lived all for the now, never saved for retirement, and died while still working in their 50s.

It’s human to judge the decision based on outcome. Seeing people making decisions that make no sense to you but somehow end up in a better place create a cognitive dissonance. These people must be doing something right! This make us judge our knowledge, our decision process, even if they are perfectly fine.

Right Decisions | Whatever comes

So the question is this, if you can only choose one of the following, which one would you choose:

Would you rather make all the right decisions knowing good outcome isn’t guaranteed? Or would you rather just get the good outcome regardless how you make decisions?

It’s a difficult question to answer.

Fortunately, in real-life we don’t have to choose. All we can control is the decision, not the outcome. The fact that sometimes wrong decisions can still lead to good outcome should give the Type A people some comfort. It’s okay to cut yourself some slack. On the other hand, don’t think you’ve only made right decisions if you are enjoying a series of good fortunes now. The next time you make the same decision, you may get the bad outcome.

The best we can do is try to make the right decisions, the ones that we are confident in and comfortable with, so no matter what the outcome is, you know you would have done the same if you had the opportunity to make the decision all over again without knowing the outcome


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