Several years ago, my wife got me a subscription to Kiplinger’s Personal Finance magazine. Generally, I enjoy flipping through it, as everything in the magazine tends to be about managing one’s money well. The latest issue describes possible ways of earning a higher return, the front covering proclaiming
“33 Ways to Get Higher Yields: Earn Up to 12% with Our Favorite Income Investments.”
Of course, who wouldn’t want to earn up to 12%? Sure, it might not be mind-blowing earnings, but for us little guys, it’s a solid return. (Case in point: right now I’m earning 2.25% in an online savings account, and for a guy who didn’t full understand interest rates until a few years ago, that’s at least something).
Anyway, at one point in the article, they mention the idea of investing in dividend paying stocks. Now, I have always liked the idea of receiving dividends. I love the yearly dividends that show up in my IRA. My curiosity being piqued, I ended up looking more closely at some Vanguard dividend-stock funds. I asked myself, briefly, Would it benefit me to buy stock funds specifically to maximize dividends?
Although I found the research interesting, I got nothing conclusive from it (besides the momentary mental salivation of thinking about higher returns). As I said, I’m already invested in stocks that pay dividends, even if I haven’t specifically bought them for that purpose. If I did so, it would amount to making a change of direction from what I’m already doing, which is buying broadly-diversified index funds (that include some dividend-paying stocks).
That’s when my investing training kicked in, including this saying that I encountered somewhere along the line:
Don’t just do something, sit there!
Although I can’t be sure if he said it, I associate this with Jason Zweig, a financial writer I have gotten a lot from. He wrote a book called “Your Money & Your Brain,” in which he thoroughly discusses the many ways we humans are neurologically wired to be crazy when it comes to our money.
For instance, Zweig says we have two types of thinking brains: the reflexive brain and the reflective brain. The reflexive brain is emotional and acts automatically. In fact, it is our default mode in moments of excitement or stress. It is emotional, easily-excitable… and can be dead wrong when it gets worked up.
The reflective brain, on the other hand, is our thinking center. It’s where we process complex math problems, consider long-term investment strategies, and take the higher-road with those we love (even when we are irritated at them!).
The reflexive brain is what gets us into trouble with our money (and many other things!). For instance, it tends to make us greedy when we shouldn’t be, fearful when we don’t need to be, or over-confident when we should be cautious.
It also tends to get us excited over taking action… even at times when we should probably stay put. By dangling the possibility of some gain or benefit, it works us up into a state where we might be susceptible to doing something we’d later regret. After all, how often does taking action when we shouldn’t get us into trouble? Said another way,
All the misfortunes of men come from only one thing: not knowing how to remain at rest in a room.“Your Money & Your Brain,” p226, originally said by French philosopher Blaise Pascal
Going back to my research on dividend-paying stock funds, I have concluded, at least for the time, to do nothing to change things. Yet for a moment I considered it. My reflexive brain started to get me excited, and just a little greedy, as I thought about those dividend-paying stocks. But it would have meant making at least a partial change to my overall strategy, without having enough knowledge to know that it is a good idea.
I am open to learning more about the topic, for sure. Maybe in the future, with more knowledge, I will inspired to take action in that area.
But in the meantime, what I got is working well enough. I won’t just do anything… I will sit there!
Side note: This post reminds me of a post I did a few days ago, in which I quoted the Tao Te Ching asking, “Can you remain unmoving until the right action arises on its own?” Funny how these themes show up again and again, from different points of view!