Rob Macdonald | 09 January 2025
Rob Macdonald is Head of Strategic Advisory Services at Fundhouse and is a sought-after speaker and writer on topics related to financial health. He is a Certified Financial Planner (CFP®), a qualified coach and counsellor, and for the past 25 years has coached and consulted to hundreds of financial and investment advisers. His most recent book, The 7 Pillars of Financial Health - Partnering with a Professional to Thrive, is the inspiration for this article.
We all know that to be physically healthy, we need to eat healthily, exercise regularly, get enough sleep and limit our stress levels. But we are tempted by chocolate cake, delicious wine, the material rewards for working hard and the fact that Netflix is so much more fun than the gym.
We struggle to do the right things to be healthy because we are human. Similarly, we struggle to do the things that will guarantee our financial health.
Most money management resources, including artificial intelligence, can provide all the money skills we need, but this won’t guarantee our financial health.
This is because money is not an inanimate object. We have a long relationship with it that begins when we are born into the monetary circumstances of our parents or guardians and deal with money in some form or another throughout our childhood and adulthood.
Our emotional responses, many cognitive biases and social pressures consistently influence our money decisions and sabotage the financial health that should be easy to attain.
I learnt my first lessons about human emotions and money when I started in financial services heading up a small investment team. It was 1999, the year of the technology bubble. The internet was coming into its own and Google had just been established. 
Adding “.com” to your company name was like adding jet fuel to your engine if you listed on a stock market. Investor greed lead technology stocks into the stratosphere.
Warren Buffett, the world’s greatest investor, stood on the side-lines and many questioned whether he had lost his touch as an investor.
Locally fund managers took different approaches. One, who told me that the market was so high he wasn’t sure where he was going to earn returns, kept taking investors’ money and putting it in technology stocks.
Another stood back watching the technology craze with bemusement. That manager nearly went out of business as investors redeemed their funds to participate in the technology bubble.
But the very next year the bubble burst and suddenly greed was replaced by fear. Investors raced for the side-lines. Buffett famously commented: “Only when the tide goes out do you see who has been swimming naked.”
The local manager whose contrarian investment philosophy kept it from being caught up in the craze of the market then grew from strength to strength. Like Warren Buffett, it was rewarded for sticking to its investment principles.
The lesson was simple. Stick to your principles and you will enjoy investment success. Buffett has always maintained that successful investing does not require a stratospheric IQ or inside information, but rather a sound investment framework and the ability to prevent our emotions from corroding it.
Yet so few of us have clarity on our investment principles and our decisions are easily swayed by our emotions.
This lesson was brought home to me again in 2001, when 9/11 shocked the world. The image of planes flying into the Twin Towers in New York spread fear throughout the financial markets. My initial reaction was that we should move our portfolios into cash to give us time to consider this new world.
Fortunately, more experienced and sanguine colleagues convinced me that many tragic events have impacted investment markets in the short-term, but had no material long-term effects on asset prices.
The classic mistake investors make is to disinvest in times of peak fear, whether it be March 2000, 9/11, the global financial crisis of 2008, the Covid-19 pandemic of 2020 or other such events, because we really cannot time investment markets.
Cashing in when a portfolio has fallen, realises a loss, and invariably we only re-enter the market when it has risen above where we cashed out, making that loss permanent.
These were early lessons I learnt about the power of emotions over decision-making. When it comes to money, greed and fear are particularly powerful catalysts for our choices. Other emotions like happiness, sadness or anger can also influence our decisions.
Most resources aimed at helping you with money decisions are based on the premise that if you simply manage your money in line with certain principles your money will serve your needs at your command.
But this belief fails to recognise how completely interconnected and interdependent our lives and our money are. Financial health is best served when our life and money decisions are in sync.
To over-come the challenge of being human, there are seven skills we need to develop: clarity, confidence, connection, curiosity, collaboration, communication and courage.
A personal story demonstrates how these skills serve our financial health. My wife and I recently received an unsolicited offer on our family home of over 20 years. The offer was generous and increased twice over a few months.
The prospect of a significant cash injection to our savings and the ease of the transaction – not having to market our house and find a buyer – made it very appealing.
But with three teenage children still at home, our challenge was to find an alternative home that would make selling our home financially worthwhile without compromising our home life significantly.
After viewing several other houses and much deliberation, we realised that as attractive as the money was, our quality of life would be too severely affected. We decided not to sell our house.
In reaching this decision, we practised the seven skills. First, we sought clarity on what was important, but not immediately obvious, to us. Was money or our home more important? We had to practise confidence that we would gain the clarity we needed. We spoke on several occasions with our financial planner. By sharing our hopes and fears about the possible transaction with an interested but unaffected third party, he was able to support us emotionally.
We had to work on the connection between ourselves, and with the estate agent and the buyer. A breakdown in any of these connections could have undermined the quality of our decision-making.
We also had to practise curiosity: we were open to the possibility of a change in our life and what that might bring for us. During this exploration, we collaborated with each other and our financial planner, who served as a sound thinking partner. Communication with all parties, including our children, was key.
When we finally made our decision, not knowing if it was definitely the right one, we had to be courageous.
Being mindful of the “seven Cs”, and practising them to our best ability, meant that we felt secure that our financial health was well served, even though we passed up the cash injection.
In future articles I will share more insights about each of the “seven Cs” so you can develop your own financial health, one decision at a time.
