The idea of delayed gratification is nothing new. From planting a crop, to gestation periods, to retirement savings – we’ve well mythologized the concept. Before we hurry up and wait for something though – we should ask two questions: “Why wait,” and “compared to what?” For those of us who professionally give advice, we should expect to encounter these questions often – and that requires having a solid grasp of the logic.
In the investment world, people are freaking out about bonds this week. We can use bonds (the investable asset class) to illustrate the underlying mechanics of delayed gratification and our “why”/”compared to what” questions. In their essence, when someone chooses to own a bond they are really just giving some other party a loan. Since they don’t need the money today, someone else can use it for a little while in exchange for interest and an eventual repayment. “Why” = they don’t need the money right now; “Compared to what” = lending makes sense compared to other opportunities, i.e. just holding the cash or investing in something else. The delayed gratification comes from having more at the end of the loan than they started with.
Obviously, the same logic applies to buying a house, picking stocks, or even funding our educations. All investment is, in fact, an exercise in delaying gratification. Where we get into trouble is that the “why” always makes perfect sense when we initially make the decision, but the “compared to what” can haunt us over time, especially if it turns into “why am I still doing this?” Most investable commitments have regular exit options before their maturity, which means the “compared to what” question just doesn’t go away. When not-so-gratifying stuff starts to happen, like the recent bond volatility, these questions get louder. Henry Youngman, king of the one-liners, used to answer “how’s your wife?” with “compared to what?” While it’s a clever punchline, it’s also a human truth that we’re wired to measure things opportunistically. To give good advice is to know what makes a person’s internal discipline clock tick.
Our answer to “should we be changing something” should always tie back to the delayed gratification framework. The original decision was based on some “why,” whether that was to save for retirement or give the portfolio more stability, and we first need to understand if “why” is still in place. Only then can we honestly and analytically answer “compared to what.” While the best path today may truly be different from the original, there’s a decent chance it’s not. We can’t hide from these questions, they’re the only path to the answers.
Helping people to navigate this logic when the world gets tricky is what we’re actually here for. It may be challenging, it may not always be fun, but it’s an essential job. We are official delayers of gratification who help people to understand the path they are on and why. When the world starts to act abnormally, they need us more than ever.