How to Invest Better with the “Three E’s”

Daniel Crosby breaks down the “Three E’s” of better investing: education, environment and encouragement.

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As you pointed out, you’re more likely to be panicked at a bottom. You’ve just been through a very painful experience, and you’re more likely to be euphoric at the top. Everything’s been roaring along. Emotions, wow, can they be tough. How do you get around them? Do you believe in automation?

Yeah, I do believe in automation. I believe I, I have what I call my three E’s of behavior change because behavior change is very, very tough. I mean, there’s a reason why every year, effectively all of us set intentions and goals and, you know, south of twenty percent of us see them through. It’s really hard to change your behavior, especially around money.

So I think there’s, there’s three things we need, three E’s. The first of these is education, We need to have just a basic idea of how markets work. We need to tune into The Wealthy Barber and get educated on how markets work. You know, the best example I can give there is, uh, over the last thirty-five years, the average peak-to-trough intra-year drawdown, right, has been about fifteen percent for the US stock market. You would think every time we have a ten percent dip in the market, if you listen to the media, you would think it was the only time it had ever happened and that it was the end of the world.

It’s as regular as your birthday. And once you know that data point, you can start to contextualize the news, right? So education is that first one. The second one is environment. This is where we would attend to things like automation, which is so, so powerful, right? It is so much easier for you to set and forget a process of withdrawing and allocating funds rather than trying to make the good decision every two weeks when you get paid from now until eternity.

It is so much easier. And the thing that I love about it, Dave, is you’re taking a human tendency, which is this tendency to be forgetful and status quo prone and lazy and fearful, and you’re making it work for you. The same mechanism that has led me to forget about my HBO account for two years and then I like, you know, I remember it and I’m, “God, I’m paying for this.”

Like, you know, you can do that with your retirement savings, and it’s so powerful.

The news you put in your head, the way you automate, all of that is your environment. And that, if you just had one, that’s the best predictor of your success. And then the third one is encouragement. Getting a coach, getting an advisor, getting someone in your corner who in March of 2009 can, can be that encouraging voice, be that voice of calm and wisdom that, that’ll just keep you on course.

So educate yourself, set up your environment so you’re poised to win, and then surround yourself by people who can support you on that journey.

Okay, I’m gonna be honest. I love your stuff.

Steal it!

Seriously, I love that answer. I think it’s bang on and matches up perfectly to all the experiences I have seeing people manage their money.