Investments and Relationships: More In Common Than We Think

My wife and I were at a wedding over the weekend. It was two great friends of ours and I was even blessed to have a small part in their wedding doing a tiny reading.

I wrote them a small note after and included this piece:

Being able to look into each of your eyes as I did the reading is a memory and an honour I will cherish forever.

Our university friend group is 15 years(ish) and counting (Yes – some entered the picture a tad later as spouses etc but the foundation started all the way back when many of us entered university for the first time).

When I looked into that couple’s eyes – there is a depth forged through multiple years of memories, through having kids, through sharing emotions/trials/tribulations, and through countless hugs, high fives, laughs, and loves.

This extends across our entire friend group. We have a beautiful interwoven tapestry of laughs and tears, of loves & losses, of late nights and hazy mornings.

It got me thinking about long term relationships and the joy & emotional wealth that comes from it.

Naturally – I started thinking about the money aspect and “investing in your friends” and as I pondered it – I realized there is a lot more similarity that we perhaps may give credit to when it comes to each of these things.

Interestingly - I think the lessons that lend themselves to being good long term investors/building long term wealth can also allow us to build/be successful in long term relationships. I enjoyed pondering the below – I hope you do too.

Markets are uncertain. Friends are uncertain.

We don’t know what the markets are going to do on a day to day, week to week, or month to month basis. We have no idea whether it will be a good day, or a bad day. Whether the markets will go up or down. We “invest” (whether putting additional cash in or staying invested with what we have) expecting that the markets go up.

Similarly – we don’t know what our friends can or will do on a day to day basis. Now they may be a tad less random than the markets…but we don’t know their schedule every single day. When we send them a text checking in – we don’t know for sure they will respond (or that the response will be nice) – we just expect that it will.

So why do we invest in markets and why do we invest in friends?

We choose to invest in “the markets” (I’m referring broadly to stocks and bonds here) to grow our wealth. We put in money (and time) expecting that there will be a “better” result at the end. We hope and assume that it will grow and we will be better off (wealthier) in the end and we can use that wealth for our benefit and our happiness.

Friendships, families, and marriage/partnerships are no different. We invest our time, our money, and most importantly: our heart. We choose to give something to the other person in the hope that it builds a bond longer than that day. We choose not to spend those “resources” on ourselves today but rather – spend them on the other person as an investment. We hope that over the short AND long term – that investment will pay dividends for our happiness.

The evidence supports investing in both

There is a robust history of data showing that the stock market is a place that wealth can be made if you can stay invested for the long term. There is evidence about why investing works, how to invest, what makes a good portfolio vs not, and even evidence on where we often go wrong.

I haven’t explored the “evidence” of friends and relationships but psychologists and therapists will highlight that they operate from an evidence based approach to therapy. There is plenty of research (anecdotal and more robust) that friendships contribute to a happier & more meaningful life. There is also good research (and many of us will be quick to highlight common sense) around what makes a good vs bad friendship.

Extended periods of decline or negative returns

Investments don’t go straight up consistently. There are risks and downsides to investing. We expect positives and are disappointed when we receive negative returns occasionally. It’s a rude awakening every now and then – but that is part of what the investing journey entails. When we are investing through a multi-year decline like 2000-2002 or 2007-2009 it can feel like we are throwing good money after bad. It can feel like the market is taking without giving anything back in return.

Relationships are no different. No one will be their best every single day. Life happens. Job loss, loss of a parent or sibling, loss of a child or miscarriage. A friend may have a child and be less available. Or they may meet the love of their life and have less time for their “friends”. In a marriage you may feel like there is a period of time where you are putting in more work than the other person. Perhaps you are supporting them through an illness, or the burdens of parenthood leave you both less time for each other. It too can feel like you are throwing good energy & time after bad. Or that you are giving and they are taking without giving back in return.

Behaviour: Recency bias – thinking the short term past will repeat itself

In the markets – it’s a common challenge to stay invested through the hard times. We can be tempted to chase the highs of the positives. When markets go up – we want to buy more in the belief they will continue to go up. When they go down – we are scared off, we want to wait by the sidelines in case things get worse. We believe what just happened will continue.

This is a lot like the honeymoon phase of a relationship and the down swings. When a relationship starts out (love interest or friendship) those first few dinners or nights out can be fun getting to know someone new. It’s exciting to think about the next fun thing you will do or to imagine that all occasions will be full of laughs and excitement. But in the down swings – when you haven’t heard from a friend in 4 months because their life is so chaotic with a newborn, or when they start a new job and forget everyone exists, or when they have depression (that they don’t tell you about) and drop off the face of the earth for a while…it can feel like they don’t care at all and never will again.

The dangers of pulling out at the lows

Everyone knows that you should stay invested for the long term. And yet if your portfolio is down 20%, 30%, or more – it is impossible to stay invested. You can feel the pressure/frustration/anxiety of wanting it to end. Those moments are often compounded with other issues – you may have job stresses, the news is negative, and the list goes on. But once you make that decision and sell – it’s tough to get back into investing and most advisors I know have a graveyard of stories of wealth destroyed from these decisions.

Far too often – we are going through challenging times at the same time as our friends. We might all be having kids at the same time and balancing being good parents, strong employees, and navigating our own marital stresses. Or we might all be in that later stage of life where we are burying parents while caring for ill spouses. When overwhelmed with those stresses and not having support from your friends or spouse – it can be far too easy to say those ill-intentioned words we can’t take back or embark on an impulsive affair from which the fractures in the relationship are irreparable.

(A quick aside – I have no data for this but I suspect recency bias contributes meaningfully to the affair situation. Thinking your current relationship will “never” improve and that new, lust-filled endeavour is something that will continue indefinitely.)

Building from zero vs compounding on a base you already have

Nick Maggiulli wrote about the idea that starting out your contribution or savings rate (that is – how much in $$ you were actually investing) mattered more than what the rate of return was. Later on you could worry about the rate but early on – what you put in is what really counted. This is based on the idea of compounding. When you have a large enough portfolio – the growth almost seems easy because the rate of return is calculated on such a large base. 10% of $1,000,000 is very different than 10% on $1,000.

You can see the parallel here. Starting out with a friendship or relationship – you both need to put in work. You need to spend time getting to know each other. Ask the tough questions, get comfortable being uncomfortable as you share and open up to each other. Later on though? It’s easier. You built that foundation and all you need to do is stay the course. The trust, the knowledge & history is all there to call upon. Think of how many times it “feels like old times and nothing has changed” when you get together with close friends. That large “base” of friendship allows compounding to work it’s magic effortlessly.

The reward of long term growth

Hitting that retirement with the large nest egg sometimes feels a bit like a journey. But when you get there it does feel good. It’s nice to see the fruits of your labour and each milestone of money ($100K, $500K, $1 Million) is worth pausing to celebrate.

Long term relationships are similar. Friendships of 40+ years & 50 year wedding anniversaries are incredible milestones. They are a treasure trove of wisdom, friendship, memories, and you become a role model to those around you. It’s a wonderful time to pause and reflect on the path that got you there.

But for both – you had to get there. The reward is only there if you make it that far. Sadly – not everyone does.

So what lessons does this teach us?

Control what you can control: We can’t control the markets and we can’t control our friends. We can only choose to show up each and every day.

Think twice before succumbing to the belief that things stay the same: Life has seasons. Your friends or spouses/partners will have challenges and need your help. The tide eventually turns as well – whether we see that change coming or not.

?We need to weather the lows without giving in to reach the highs: In investing and life – time in the markets (or time in the relationship) may be the true skill. Willingness to stick to it may be the trump card. Remember that things can and will change before throwing in the towel.

The grass is not always greener…especially when you have to start over with a fresh plot of dirt. – is starting over and putting in the hard work truly better than coasting off the foundation you already set?

***Use evidence and data to help make good rules about your actions: In both investing and relationships – all of the above ONLY work when you have a good portfolio or good relationships to begin with. Use evidence & experts to help define what “good” to ensure you aren’t doing harm to yourself financially or emotionally will always be a wise choice.

Cheers to your long term wealth and even more importantly…

Cheers to your long term relationships.