Most financial advisors will tell you that emotions cloud your judgment. They provoke irrational behavior and have no place among the pie charts and annualized returns on your financial plan. It’s best to compartmentalize your feelings and save them for your therapy appointments.
But in our opinion, the idea that emotion—and more broadly, values—should remain separate from money and investing is simply untrue
Expertise and empathy both have roles to play in your finances. It’s not“either/or”—that’s a false choice. Your history, current situation, and future ambitions influence every financial decision you make. Disregarding this fact is doing a disservice to your well-lived experiences.
Recently, we came across the metaphor about the elephant and its rider, which was first described in a book titled “The Happiness Hypothesis” by Jonathan Haidt and then summarized in “Switch” by Chip and Dan Heath.
The elephant represents our emotional side and its rider represents our rational side. The rider is perched atop the elephant, holds the reins and seems to be in control. However, this control is precarious because the rider is so small relative to the elephant. Anytime the elephant disagrees with the rider when deciding which direction to take, the rider loses, completely overmatched by the elephant.
Often, we think about our strong emotions in negative terms. When we sleep in, as opposed to getting to the gym before work. When we dial up an old flame at midnight. When we procrastinate. But we know there are always pros and cons to every decision we make. What about the elephant? The elephant’s weakness(i.e., our emotion and intuition) is that she can be lazy and skittish, and is often looking for a quick payoff. The elephant is usually willing to sacrifice long-term payoffs in order to get instant gratification.
But we love our elephants!
Emotions don’t always have to be bad influences. Love, compassion, sympathy, and loyalty are real strengths; our protective instincts and resolve to stand up for ourselves and others are strengths, too. And the rider? The rider’s strength is her ability to think longterm—to think beyond the moment. Her downside? She’s prone to analysis paralysis, spinning her wheels and overthinking things.
Here’s the deal: To change things, you need both types of emotions. The rider provides the planning and direction, while the elephant provides the energy. Acting alone, the reluctant elephant and wheel-spinning rider ensure that nothing changes—but when they move together, change comes easily.
The whole point of this metaphor is to illustrate the power of guiding the elephant in the right direction. If you can do that, there’s no stopping you. We focus on emotion because it is such a powerful tool to keep your financial future moving in a positive direction. Our goal is to help encourage the elephant to follow the path that you’ve laid out.