What's the worst that could happen?
It might come as a surprise given my line of work but...
I don’t own any individual stocks.
This hasn’t always been the case. I remember the first individual stock I bought. It was a nerve racking three days until I sold it and I haven’t bought one since.
While I learned a lot from the experience, putting money at risk in hopes of a quick win just wasn’t worth it to me. And to be clear – I’ve got nothing against individual stocks as many people have been successful using them as part of their overall financial plan. They just weren’t for me.
Optimizing your decision making for long-term, lasting success requires being comfortable considering worst case scenarios.
To accomplish this, whenever you’re facing a big and potentially impactful decision, simply ask yourself first...
What’s the worst that could happen?
For example, while I’m clearly not comfortable with individual stocks, I am comfortable using index funds. I know that I’ll never beat the market using index funds but I also know I’m not subject to the individual company risk that comes with investing in just a few stocks.
When I ask myself what’s the worst that could happen with index funds, my personal answer is that I’ll likely experience some big, yet temporary, market declines when the overall market drops. And that’s a risk I’m willing to take to give myself the best chance of achieving my personal goals and priorities.
As I’m sure you already see, this question can be applied well beyond your investment decisions. Some other times to ask yourself this question can include when you’re considering...
Making a job change and/or going into a new line of work
Upgrading or renovating your house
Purchasing more expensive cars
Buying a lake house, vacation home, rental property, or timeshare
This question isn’t meant to serve as your own version of the no fun police. Rather, it’s meant to act as a check valve of sorts.
If asking the question helps you realize your decision only works if everything goes exactly according to plan, you might want to consider creating some more breathing room before moving forward. And if asking the question helps you realize you have plenty of breathing room right now, your comfort and confidence around your decision should increase as well. The most important part is making time to ask the question in the first place.
Adopting this approach won’t always let you make the fun, heat of the moment decision — but it will increase your chances of making a decision that is sustainable now and in the future.
So next time you’re faced with making a big, impactful decision, take a moment to ask yourself ‘what’s the worst that could happen’ first. Then sit back and watch as the best way forward slowly starts to reveal itself to you.
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