The Consistency of Inconsistency, and How to Adapt Your Financial Goals

When my children took their first steps, they were tentative. They were quick to grab the nearest object to keep their balance. However, it didn’t take long before they started acting like they were invincible. Seemingly overnight, my children went from hanging on my legs to running across the room.

Based on my own very small sample size, it seems children move very quickly from uncertainty about walking to absolute certainty they can run everywhere. Even when they trip or lose their balance, their memory of the event appears fleeting. Luckily for children, this sense of certainty, and their willingness to forget the falls, helps them get better at walking and eventually, running.

But this certainty that we admire in children can become a problem for adults. The author Nassim Taleb, in a recent interview with James Altucher, referred to this as the illusion of certainty.

From investing to world affairs, we tell ourselves that there’s so much information available that we can know what’s going to happen next. We tend to overlook that our certainty comes from selectively building a picture of the world that conforms to what we want to happen, not what will happen.

I see it all the time when people talk about trying to time the market by buying a bundle of stock at just the right moment. They’ll compile a list of recent events. Then, based on that list, they’ll express, with great certainty, that it’s time to get into the market. At that same moment, others will assert that it’s time to sell and get out of the market. It’s both entertaining and frustrating to hear different people use the exact same information to justify two opposite actions.

Unfortunately, the noise isn’t going to disappear any time soon. Change and uncertainty are consistent in their inconsistency. We don’t really know what will happen next, and we need to get better at living with that reality. We can start by putting the noise in context.

By accepting, or even embracing, the idea that uncertainty is part of the deal, that in itself becomes a type of certainty. Instead of being shocked by every change or unexpected piece of news, we adapt. We figure out another path that keeps us moving toward our goals.

If you do this yourself, you’ll soon discover that your certainty about uncertainty separates you from a lot of people. Just look around and listen. It’s mind-boggling how sure people are about what they “know” will happen in the future, even though their certainty is an illusion. Rest assured that it won’t take long before something weird happens. Then, you’ll adjust while they panic.

Yes, it’s not easy to get comfortable with uncertainty. But as we know from the old saying, few things in life are certain except for death and taxes. There’s no reason to think we can’t learn to deal with the rest as it comes and end up pretty close to where we want to be anyway. It will just happen with fewer panic attacks along the way.

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The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2014, The BAM ALLIANCE

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Carl Richards, CFP®

Carl Richards is the creator of the weekly Sketch Guy column in The New York Times and is a columnist for Morningstar Advisor. Carl has also been featured in The Wall Street Journal, Financial Planning, Marketplace Money, The Leonard Lopate Show, Oprah.com and Forbes.com. His simple but meaningful sketches served as the foundation for his first book, "The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money."

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