Susan's Scoop

Keeping my hand out of the cookie jar

I’ll be honest – I like to ‘play’ with my stocks. I like searching for the next unicorn, uncovering value opportunities with low P/E ratios, and reveling from the small dopamine hits that come from beating the market by a little bit and taking risks. I really like having my hand in that cookie jar.

But this isn’t a great way to manage a portfolio. According to Morningstar, 93% of active stock managers fail to beat the market over a 20-year time horizon. It’s just too hard to identify the right opportunities, and then BOTH buy and sell at exactly the right times – versus just holding a low-cost S&P 500 index fund, which always follows the top performing companies (no individual stock picking needed).

The best-performing portfolios over the years have consistently been held by people who either forgot they had an account or passed away – because they didn’t touch the cookie jar. As Nobel prize-winning economist Gene Fama said, "Your portfolio is like a bar of soap. The more you handle it, the smaller it gets."

So how do I scratch that itch to have my hand in the cookie jar without destroying my whole portfolio? For me personally, I decided to lay down some ground rules:

1) I don’t touch the retirement accounts. They stay invested in low-cost index funds and I’m not allowed to mess with them.

2) I keep the bulk of my taxable brokerage account in low-cost index funds as the solid and stable hull of my ship.

3) I allow myself up to 5% of my assets for my “mini cookie jar” that I can do whatever I want with – go after trendy stocks, take a risk on an unproven company, or invest in a new asset class. This mini cookie jar allows me to scratch my itch and still get my dopamine hits, while preserving the bulk of my portfolio. And I still have something interesting to talk about at parties!

So far my mini cookie jar is up 44% this year compared to 15% for the S&P 500, but I know that’s not a guarantee and could easily end up going sour.

Of course, knowing you shouldn't keep your hand in the cookie jar doesn't mean you'll stop wanting to. I know this because I'm a financial professional, and I still have to set rules for myself!

This is also one of the things Caitlin and I help our clients with at Rising Femme Wealth. We help people build an investment strategy around their actual financial goals, so they have a plan to come back to when the market gets scary, a hot stock starts making headlines, or they get the urge to tinker with their portfolio.

Personally, I'm not giving up my mini cookie jar anytime soon. I enjoy the research, the occasional win, and having something to obsess over besides what to make for dinner. But I've learned that enjoying the game and betting the farm on it are two very different things.

I don't have to choose between having fun and being responsible with my money. I just have to know which parts of my portfolio are for ‘playing’ and which parts are there for a much bigger purpose.

What I'm Reading

💻 Playing the Wrong Game – Nick Maggiulli

It's easy to get so caught up trying to make more money that we forget what we're actually trying to accomplish with it. In this article, Nick Maggiulli talks about how his perspective on success changed after becoming a dad, and it got me thinking about how often we chase things because we're supposed to want them. It’s a good reminder to stop and ask yourself whether you're building the life you actually want, or just getting really good at playing the game.

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