Camille Van Vyve
02 Aug 2024
Invest to minimize future regrets
In 1994, Jeff Bezos used a simple method to make a life-changing decision: leaving a well-paid job to found Amazon. This method, or rather this mindset, known as the "Regret Minimization Framework", is a powerful tool for making financial decisions and can be applied to investing.
Understanding Bezos's regret minimization
The essence of Bezos's method is simple. Project yourself into the future and ask, "Will I regret not having done this?" It's about minimizing future regrets rather than maximizing current gains. For investors, this means making decisions today that your future self will thank you for… or deferring a short-term gain to enjoy a much larger one in the long term.
€100.000 today or €1 billion tomorrow?
Imagine you are faced with the following choice: either you win €100.000 for sure, or you have a 50% chance of winning €1 billion. The probability of winning a life-changing amount is such that you might take the risk. But if the probability drops to 10%, what would you do? Ask yourself this question in terms of future regret, considering your current level of wealth (unfortunately, you are not Jeff Bezos...): will you regret missing out on a sure and pleasant gain, or missing out on even a slim chance of becoming a billionaire?
Diversification according to Harry Markowitz
Nobel Prize-winning economist Harry Markowitz once said, "I should have computed the historical co-variances of the asset classes and drawn an efficient frontier. Instead, I visualized my grief if the stock market went way up and I wasn’t in it – or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities." This quote perfectly captures the spirit of Bezos's method. Markowitz chose a balanced approach to reduce potential future regrets, illustrating the importance of diversification in building an investment portfolio.
The role of rebalancing
Rebalancing your portfolio is also a simple way to minimize regrets. By having a systematic plan to sell outperforming assets and buy underperforming ones, you maintain a balanced investment strategy. This can be done according to a fixed schedule or when your asset allocation exceeds a certain threshold. Ultimately, regardless of the method, the key point remains the same: have a plan and stick to it.
Minimize your future regrets with Easyvest
Minimizing future regrets does not mean taking excessive risks. On the contrary, it means adopting a strategy that maximizes long-term peace of mind. In this context, ETFs are an excellent safeguard against regrets. With maximum diversification and a good stock/bond balance, they allow you to capture market returns without taking risky bets. Easyvest also guarantees that your portfolio will be regularly rebalanced in order to maintain your target allocation over time. Want to get started while maximizing your long-term peace of mind? Perform a simulation on our website and contact one of our Wealth Managers for personalized advice.