Ancient Wisdom and your Portfolio

 

Weather“The chief task in life is simply this: to identify and separate matters so that I can say clearly to myself which are externals not under my control, and which have to do with the choices I actually control. Where then do I look for good and evil? Not to uncontrollable externals, but within myself to the choices that are my own…”

Epictetus, Discourses, 2.5. 4-5

 

As many of you may know, I am a student of Stoic philosophy; a philosophy founded in Athens in the early third century BC. Influential contributors to this philosophy include Roman Emperor Marcus Aurelius and, former slave and lecturer, Epictetus.

What I find interesting about this, over two thousand year old, philosophy is that the teachings are still relevant and have practical application today.  

At the heart of Stoic philosophy is the differentiation between what we can control and what we can’t. We do not have control over the results of elections, changes to the tax system, Brexit results, Middle East politics or stock market fluctuations.

We do control our opinion about those events, but do not control the actual situation. So it is important to be clear and focus on what is within our control and what is not.

When it comes to our finances, there are many things we can control. One area I like to focus on is spending, clearly defining the amount of income required from your portfolio in the coming years and any lump-sum expenses that will be incurred.

If $1,000 per month is required to be withdrawn from your portfolio over the next 5 years and you will be buying a car in another year ($25,000), I would consider setting aside $85,000 ($1,000 X 60 months, plus $25,000). I refer to this as a Cash or Income Wedge; an estimate of funds that you will likely spend in the next few years (1 to 5 years). The Income Wedge would be carved out of your balanced asset mix, then invested in high interest savings accounts, GICs, or short-term income funds.

Should markets dip over the next year, it would not have an impact on your income or your ability to buy a new car. You would not be taking money from your portfolio when markets are down, which could have a significant impact on the sustainability of your portfolio.

Understanding that you do not have control over external events, like market corrections, is crucial. Our time is better spent focusing on what we can control.

I’ll leave you with this final quote that I have posted above my office desk.

“Keep this thought at the ready at daybreak, and through the day and night- there is only one path to happiness, and that is in giving up all outside of your sphere of choice, regarding nothing else as your possession, surrendering all else to God and Fortune.”

Epictetus, Discourses, 4.4.39

We will be happier, and have an advantage, should we maintain the focus on what we can control.