Fix It Friday Ep. 36 - Financial Ozempic: Are We Treating the Symptom Instead of the Disease?

• Volatility isn't the real enemy. The greater danger is allowing market fluctuations to trigger emotional decisions that disrupt your long-term investment strategy.

• Inflation can quietly erode wealth. Focusing only on reducing short-term discomfort may distract investors from protecting their long-term purchasing power.

• Every strategy has trade-offs. Covered calls, excessive bond exposure, and tactical portfolio adjustments may limit upside potential or interfere with compounding.

• Discipline matters more than prediction. A thoughtfully designed investment plan and the temperament to stick with it can be more valuable than constantly reacting to market conditions.

Disclaimer 00:00

The following podcast by Fusion Family Wealth LLC, Fusion, is intended for general information purposes only. No portion of the podcast serves as the receipt of, or as a substitute for, personalized investment advice from Fusion or any other investment professional of your choosing.Please see additional important disclosure at the end of this podcast. A copy of Fusion's current written disclosure brochure discussing our advisory services and fees is available upon request or at www.fusionfamilywealth.com.

Jonathan Blau 00:19

Welcome back to another episode of Fix It Friday. This week, I wanna challenge a belief that's deeply ingrained in the investment world, and that is that the primary goal, or at least one of the main goals of investing, is to reduce volatility. I call today's episode Financial Ozempic: Are We Treating the Symptom Instead of the Disease? At first glance, sounds reasonable to treat volatility reduction as a goal. Nobody enjoys watching their portfolio decline, nobody enjoys uncertainty being thrown in their face, and nobody enjoys seeing less on their statement than they saw a few months earlier.But what if we've confused discomfort with danger? Because in investing, those are not the same thing. Volatility is uncomfortable. Inflation, which is what we call the real threat to our money, is dangerous. Behavioral mistakes themselves are dangerous, and volatility can be dangerous to the investor because it can catalyze such behavioral mistakes, which means they can actually disrupt their portfolio in response to the volatility and mess up their entire long-term compounding. But again, volatility is not dangerous to the portfolio, it's dangerous to the investor's response to the portfolio.

Voice Over 01:35

Welcome to the Crazy Wealthy Podcast with your host, Jonathan Blau. Whether you're just starting out or are an experienced investor, join Jonathan as he seeks to illuminate and demystify the complexities of making consistently rational financial decisions under conditions of uncertainty.He'll chat with professionals from the advice world, entrepreneurs, executives, and more to share fresh perspectives on making sound decisions that maximize your wealth. And now, here's your host.

Jonathan Blau 02:09

So understanding the difference may be one of the most important lessons an investor can learn. When markets decline, we actually feel poorer, we become anxious, we question our decisions, and we want relief. But feeling poor temporarily and becoming poor permanently are two very different things. Inflation permanently erodes the value of every one of our dollars by compounding away at it to the tune of at least three percent per year. Behavioral mistakes can permanently derail a financial plan. Volatility by itself does neither. Yet investors often spend enormous energy trying to avoid something that's uncomfortable, volatility, while paying far less attention to the things that are actually dangerous, inflation and the behavioral mistakes that volatility tempts us to make. That's the irony. Volatility can make us feel poor temporarily. Inflation actually can make us poor permanently.And when volatility leads us to abandon a disciplined investment strategy, the behavioral mistakes that follow can be every bit as damaging, if not more so, than inflation itself. But human beings are wired for survival, not for the ability to navigate the vagaries of financial markets and economic downturns.The same instincts that helped our ancestors avoid predators and natural disasters are still operating today. The problem is that the markets are not life and death situations. So our biases that evolved over millions of years to help us survive are still working the way they were designed. The problem is they're working in an environment that they were not designed to help us navigate. When markets fall, our brains interpret uncertainty as danger. We feel an overwhelming urge to do something. Sell, reduce risk, move to cash, wait until things calm down, until the dust settles, as they say. That's when the monster shows up, and the monster isn't the market. The monster is the emotional response the markets create. The monster that tells us this time is different. The monster that insists doing something must be safer than doing nothing. The monster that has appeared during every major market decline in history. The headlines change, the current events change, the experts change, but the monster is the same. Because that monster is uncomfortable, investors often look for relief.

Jonathan Blau 04:30

That's where what I call financial Ozempic comes in. Just as Ozempic suppresses appetite, many investment strategies are designed to suppress the discomfort created by volatility. More bonds, something called covered call strategies, where we own a stock, stock A, and we actually sell someone the right to call or buy that stock from us at a s- fixed price in the future. Oftentimes, a price that the stock, if we held it, would far surpass over time. But we get called out of it too soon, and that creates taxes. But it gives us the illusion that we're creating more return, 'cause every time I sell that option to someone, a call strategy to buy the stock from me, I receive a premium, just like an insurance company would.

Jonathan Blau 05:16

And so that gives me the illusion that my total return will be greater by receiving those periodic premiums, when in fact, I'm reducing my biggest benefit, the long-term compounding appreciation that I give up prematurely. Alternative investments, things like private equity or hedge funds. Tactical asset allocation, which simply is the process of taking a look at what's going on currently in the economy or the markets and readjusting my portfolio in response to that, which is one of the biggest mistakes anyone can make. Portfolios should only be readjusted in response to changing life events or changing needs, never in response to short-term market dislocations or economic downturns.People will try to time the market. Risk-managed portfolios, meaning portfolios that limit downside, at least their claim, and also limit upside. To be clear, none of these strategies are inherently bad. Some have legitimate applications, but investors should ask a simple question, "Are we solving the problem, or are we simply reducing the feeling the problem creates?" Because discomfort is a symptom. Inflation and behavioral mistakes are the actual disease.Take covered call strategies, for example, just to reiterate. The sales pitch sounds appealing, generate income and reduce volatility, but that benefit comes at a cost. You're frequently giving up a big portion of your future upside potential in the price appreciation, creating tax inefficiencies, and limiting the very compounding that builds long-term wealth. Consider excessive bond exposure as another version of financial Ozempic. Bonds absolutely play an important role in portfolios, but many investors own more bonds than they truly need because they're trying to reduce the emotional discomfort associated with volatility. The irony is that while they're reducing volatility, they are also reducing their ability to stay ahead of inflation.

Jonathan Blau 07:09

In other words, they're focusing on what feels bad instead of what causes long-term damage. When you step back, there are really only two ways to help investors. The first approach attempts to change the portfolio. This is the world of timing, selection, and prediction. Reduce exposure. Increase exposure. React to forecasts. Adjust based on current events. The second approach attempts to change the investor instead of the portfolio. This is the behavioral approach. Instead of constantly modifying the portfolio, we build a portfolio designed to achieve long-term goals with the highest probability that we see available. Then we help investors develop the temperament to stick with it.They need to be more of an owner than a loaner, more stocks than bonds, or as I like to say, more seven percent returns after inflation historically than three percent. More focus on decades than on days. Less prediction, more discipline. Less forecasting, more perspective. The goal isn't to eliminate volatility at all. The goal is to keep volatility from causing destructive decisions because once the monster is kept in its cage, something interesting happens.

Jonathan Blau 08:21

The need for financial Ozempic often starts to disappear, not because the market declines become pleasant, they never do, but because investors learn they can survive them without interfering with the portfolio's ability to do what it needs to do over multi-decade periods. So what is the fix? Stop asking whether your portfolio is comfortable and start asking whether it's dangerous.Volatility, again, is uncomfortable. Inflation is dangerous. Behavioral mistakes are very dangerous. A well-designed investment plan rarely fails because markets were volatile. It usually fails because investors abandon the plan in response to the volatility. The objective isn't to eliminate every decline or even minimize it. The objective is to develop the temperament to endure the declines because long-term investment success is often less about finding a better portfolio and more about becoming a better owner of the portfolio you have.So that's Fix It Friday for today. I hope you enjoyed it. You can catch us on fusionfamilywealth.com, crazywealthypodcast.com, and all of your favorite podcast venues.

Voice Over 09:34

Thank you for tuning in to another episode of the Crazy Wealthy Podcast. For more insights, resources, and to sign up for our newsletter, visit crazywealthypodcast.com. Until then, stay crazy wealthy.

Disclaimer 09:53

The previous podcast by Fusion Family Wealth, LLC, Fusion, was intended for general information purposes only. No portion of the podcast serves as the receipt of or as a substitute for personalized investment advice from Fusion or any other investment professional of your choosing.Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any specific investment or investment strategy or any non-investment related or planning services, discussion, or content will be profitable, be suitable for your portfolio or individual situation. Neither Fusion's investment advisor registration status nor any amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Fusion is engaged or continues to be engaged to provide investment advisory services. Fusion is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice. No portion of the video content should be construed by a client or prospective client as a guarantee that he or she will experience a certain level of results if Fusion is engaged or continues to be engaged to provide investment advisory services. A copy of Fusion's current written disclosure brochure discussing our advisory services and fees is available upon request or at www.fusionfamilywealth.com.