What Happens When You View Relationships Like Investments? (And Vice Versa) – Presented by Mark K. Lund, Financial Advisor in Utah

Financial Advisor UtahThough Valentine’s Day has come to symbolize a celebration of romantic love, it can also be measured in economic terms.

The National Retail Federation estimated that more than half of U.S. adults celebrated Valentine’s Day last year, spending a total of $23.9 billion.1 That breaks down to an average of $175.41 per shopper. While this is roughly one fifth of what each person spent for Christmas gifts, in the case of Valentine’s Day, the entire expenditure is typically all for one individual.

People believe that satisfying romantic relationships are worth spending money on. And, in fact, psychologists have sought to use the language of economics to describe people’s assessment of what they receive for their relational investment.

According to counseling site OurRelationship.com, in the 1960s principles of sociology, anthropology, and psychology were combined with B.F. Skinner’s behaviorism to describe social interactions in economic terms.2 This new model was called social exchange theory. The theory’s fundamental assumption is that people assess how much a relationship will cost them in time, money, commitment, sacrifice, etc. versus how much they are likely to get out of it in terms of having their needs and desires met.

According to social scientists, this assessment process can be reduced to formulas like SATISFACTION = OUTCOME – Comparison Level, and DEPENDENCY = OUTCOME – Comparison of Alternatives.

One of their key findings is that, when it comes to these close relationships, people want a substantial return on their investment.

“Having positive experiences with intimate relationships is not enough, we seek to have the positive outcomes from intimate relationships exceed what we think we deserve.” If that return is not forthcoming, people begin to look for alternatives.

Many investors take this exact view with their money. They approach the market with the attitude that they deserve a certain return. To achieve this they might pick stocks they think will go up in the near term. They might make a guess on commodities. Or they might buy into a fund with a recent track record of impressive growth. Whichever they choose, they’re probably not going to be satisfied unless they receive outsize gains.

As a knowledgeable investor you can see right away what the problem is. Barring extreme luck, this kind of short-term thinking is more likely to end in losses rather than gains, while generating unnecessary transaction costs.

In the same way, a person who seeks a romantic relationship where they always get much more out of it than they invest is most likely to be unhappy. And like a stock speculator, they are likely to move from alternative to alternative at a high cost.

While a long-term, committed relationship such as a healthy marriage is worth far more than any portfolio, there are some parallels with prudent investing. Wedding vows talk about sticking it out in sickness and in health, for richer or poorer—the idea being that there are bound to be difficult times. You don’t quit when the honeymoon’s over.

In the same way, the best chance for success in saving for retirement is to go into it with eyes wide open. Don’t rely on an endless bull market. Expect some down periods along the way.

For both relationships and investing, staying committed helps position you to enjoy the greatest long-term satisfaction.

If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.

Mark Lund
Stonecreek Wealth Advisors, Inc., A Financial Advisor in Utah
11576 S State Street, Bldg. 1002
Draper, UT 84020

1. http://go.pardot.com/e/91522/ilers-feeling-the-love-3306043/92rqh2/1808398786?h=MjwfEXLRuhYnY_ur3IuVOF3D6LwdrZd-dFPH_lf3j3I
2. http://go.pardot.com/e/91522/lationship-like-an-investment-/92rqh5/1808398786?h=MjwfEXLRuhYnY_ur3IuVOF3D6LwdrZd-dFPH_lf3j3I

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