Forewarned is Forearmed - Dundurn
Mar 28, 2023

Forewarned is Forearmed

Everyone is biased. That’s because bias is a natural and ever-present element of being human. Bias is neither good nor bad by itself, but it is something we should be aware of as we make decisions while navigating life. My new book, Bullshift: How Optimism Bias Threatens Your Finances, explores a wide variety of behavioural biases, but the one it focuses on is often called the ‘good bias’ – optimism. Optimism bias, if left unexamined, can be a serious threat to your finances because of the false sense of security that comes with things having worked out in the past. The financial services industry has a commercial imperative to keep investors feeling good about their collective future. They shift their clients’ attention to be perpetually bullish – hence Bull.Shift. The events of Silicon Valley Bank (SVB) in mid-March illustrates this mindset clearly. No matter the circumstance, people are invariably and calmly reassured that things are under control and that financial professionals have the situation well in hand. This is mostly true much of the time, but what about those instances when challenges arise?

What would happen if we experienced a deep and prolonged bear market? Would we be ready? Would you be able to withstand a prolonged period of high interest rates, high inflation, or a weak labour market? Keep in mind that the world is already contending with war in Europe for the first time in nearly 80 years, rising interest rates for the first time in forty years, and serious challenges of social inequality, climate change, and massive debt levels – both public and private. People in the west have grown complacent and see an improved quality of life as a birthright. Despite this, there are signs everywhere that future generations may not have it as good as their parents had it.

The financial services industry is supposed to help you prepare for their future and life in retirement with confidence and foresight. Despite this, people are often given a steady diet of platitudes and assurances that are not rooted in evidence regarding how the world has changed – and continues to change. Much like politicians, financial advisers do best when they get their clients (or voters) to believe in their vision of a better tomorrow. The problem that few are willing to confront is that that better tomorrow may never come. It would be far better if people took a more realistic view of the world. Forewarned is forearmed, but owing to their own world view being seen through rose-coloured glasses, most advisers either cannot or will not help their clients come to terms with what seems to be in store. A short passage from the back jacket sums up the problem: “…. Advisers are immersed in a culture of Bullshift – they simply don’t realize how their positive outlook on markets is based on industry-wide groupthink. Unfortunately, this problem affects more than just your investment portfolio. After three years of an international pandemic, the full economic impact of the response to it still hasn’t been felt. There’s more pain coming, but the financial services industry’s eternal optimism, abetted by government policies designed to consistently encourage growth and avoid tough choices, is walking us toward a cliff for the global economy.”

Bullshift is a plea for purposeful action backed by realism. There’s still time to take steps to protect yourself from the effects of a major and prolonged market downturn, but time is of the essence.

John J. De Goey is an author, senior investment advisor, and portfolio manager at Wellington-Altus Private Wealth. With over twenty-five years of industry experience, he is a sought-after commentator, frequent BNN guest, and a recognized industry thought leader. His articles have appeared in the Globe and Mail, the National Post, Canadian MoneySaver, and numerous industry magazines. He lives in Toronto. Learn more here.