Radiologists can relate to the phrase “a picture is worth a thousand words.” “The only constant is change” is another adage perfectly describing the specialty.  And this dictum was hammered home by faculty throughout my radiology training: “If it isn’t documented, it didn’t happen.” 

You know I have a passion for finance. But I have a confession to make.  

I also love words.  I love learning new words.  Which is why when my parents asked me what I wanted for my birthday many many years ago, my answer was a copy of the Deluxe Encyclopedic Edition of New Webster’s Dictionary of the English Language.  It still has a place on my bookshelf (next to a well-worn medical dictionary and one of the best books I’ve read about Bob Dylan).  

I also love to make up words, which is how I came up with the title for this post.* Did you know there’s a word for that, too? Protologism. It’s a word for a new word that hopes to one day become ‘official’ and widely accepted. 

Another quick fun fact for you: before the Internet, there was Shakespearethe master of coinage.  Seriously, it’s insane, you should Google it. 

Anyway, speaking of, ahem, coinage…

Financisms:  Financial truisms

For those of you who don’t know the definition of a truism: A truism is a statement that is so widely accepted, or so evident and factual, that questioning its validity is considered foolish. 

Examples: You’ve got to crack a few eggs to make an omelette. A fool and his money are soon parted.

If you’ve read hundreds of finance books over the years, followed finance blogs, listened to finance podcasts, and attended finance conferences, you’ve probably come across many of the financisms on my list. I like them because they concisely sum up important financial concepts.  And because, well, in addition to loving words, I also love truisms and their cousins: idioms, proverbs, sayings, adages, maxims…you get the idea.  

I thought it would be fun and educational to list some of the financisms that I’ve found particularly enlightening.  Most of them have been repeated over and over without giving credit to their origin, but I’ve credited a source (which may or may not be the original source) when it’s known to me.  

My top ten financisms and what they mean:

1. It’s not timing the market that matters, but time in the market.

Market timing refers to the act of moving in and out of a financial market or switching between asset classes based on predictive methods.  It is the opposite of a buy-and-hold strategy.  It is nearly impossible to time the market successfully compared to staying fully invested over the same period. This is due primarily to costs of opportunity, transaction fees, and taxes.  A report of investor behavior showed that, if an investor remained fully invested in the Standards & Poor’s 500 Index between 1995 and 2014, they would have earned a 9.85% annualized return. However, if they missed only 10 of the best days in the market, the return would have been 5.1%. Some of the biggest upswings in the market occurred during a volatile period when many investors fled the market. 

A recent White Coat Investor post does a nice job of explaining how timing the market is a fool’s game because it requires 1) predicting the future, 2) knowing when to get out of the market, and 3) knowing when to get back in the market.

2. It’s not how much you earn that counts but how much you keep
(also: It’s not how much you make but what you make of it).

This could be construed in a couple ways.  First, that you can earn a lot of money but spend it, especially on things that you don’t value.  Second, that you earn money from investments but in an inefficient manner (again, those pesky fees and taxes) such that an unnecessary amount of the profit is eaten up by fees and taxes.

3. The greatest wealth is health.

This phrase was reportedly coined over 2,000 years ago by the Roman poet Virgil. Translation: No amount of money can compensate for deterioration of health and the limitations it places on the ability to enjoy life.  Some people remain active for a long time and don’t seem to have to work at it.  They’re lucky.  For most of us, we have to work at it every day by eating well, exercising, getting adequate sleep, avoiding stress and getting recommended vaccinations and screening exams.  I’d happily trade financial wealth for the ability to walk 10 miles a day when I’m in my 90’s. Fortunately for many of us, we have the potential to be wealthy and healthy.  Note: I’ll let you set your own criteria for financial wealth.

4. Don’t compare your insides with other people’s outsides.

In other words, stop trying to keep up with the Joneses’.  The bestselling book, The Millionaire Next Door, identifies seven common traits that show up again and again among those who have accumulated wealth. Most of the truly wealthy in this country don’t live in Beverly Hills or on Park Avenue-they live next door.  The sad truth is that a lot of people who live in big homes, drive fancy cars, and take expensive vacations aren’t wealthy.  They’ve accumulated a lot of material possessions but with them a load of debt.

5. Only in investing is it NOT true that you get what you pay for; you get what you don’t pay for.

A version of this financism was often repeated by John Bogle, founder and chief executive of The Vanguard Group, who is credited with creating the first index fund.  He preached on why it is so difficult to capture the market’s returns due to the costs of investing—fund management fees, operating costs, brokerage commissions, sales loads, transaction costs, fees to advisers, out-of-pocket charges, market timing, and so on. These fees are minimized if you invest in broadly diversified index funds and avoid market timing.

6. You can’t manage expenses if you don’t know what they are.

I’m not going to tell you to make a budget, but if you’ve never looked at how you spend your money, I suggest you have a go at it.  I think it’s fun! Track all of your major expenses for 6 months (mortgage/rent, utilities, phone/internet/cable/streaming services, food, insurance, gas/auto maintenance/other transportation, travel, health care, clothes, child care, lawn care, student loan payment, credit card debt, retirement contributions, etc.).  Also, find out what you pay in income and property taxes.  You might be surprised at where your money goes.  For most of us, money is a limited commodity and we make choices as to how we want to spend it because we don’t have a never-ending supply.  Like the Hawthorne effect (or “observer effect”), simply observing what you spend will influence the way you think about spending and may change the way you spend going forward.  The point is not to stop spending money (it really can’t be avoided) but rather to spend and invest it on things you value.

7. Net worth is not self-worth.

Net-worth: Your assets minus your debts.

Self-worth: The quality of being worthy of esteem or respect.

It’s human nature to compare ourselves to others. And many people determine who is living a more valuable life by comparing their clothes, cars, homes, and paychecks (tying self-worth to net-worth). I hope you don’t do that, because life is far more valuable than the things that you own.  Your self worth is also not determined by how many things you cross off your to-do list, your job, your social media following, your age, what other people think of you, how far you can run, your grades, the number of friends you have, or your relationship status.  You are the only one who determines your self-worth. What truly matters when determining people’s worth are their kindness, compassion, empathy, respect for others, and how well they treat those around them.

8. In the end, how your investments behave is much less important than how you behave
(source: Benjamin Graham). 

Behavioral finance theorists argue that, rather than being rational, people often make investment decisions based on emotions and biases. Investors often hold losing positions (i.e., investments) rather than feel the pain associated with taking a loss. The instinct to move with the herd explains why investors buy in bull markets and sell in bear markets. When the market takes a big downward swing, investors see the value of their portfolio plummet and hear TV/social media/blog chatter about “getting out of the market before it goes down even further.”  But doing this results in a behavior of  buying high and selling low, leading to lower long-term gains than if the investor had ignored the hoopla and stayed the course.  

9. The market giveth and the market taketh away.

A stock market correction is usually defined as a drop in stock prices of 10% or greater from their most recent peak. If prices drop by 20% or more, it’s called a bear market. Since 1920, the S&P 500 Index has—on average—recorded a 5% pullback three times a year, a 10% correction once every 16 months, and a 20% plunge every seven years. Corrections have lasted an average of 43 days. In 2020, the coronavirus pandemic rocked the stock market, sending it into another bear market. But within five months, the S&P 500 had made a full recovery and was setting new record highs. Key point: market swings are to be expected and should not influence your long-term investment strategy.

10. Past performance is no guarantee of future results.

This year’s top-performing mutual funds aren’t necessarily going to be next year’s best performers. It’s not uncommon for a fund to have better-than-average performance one year and mediocre or below-average performance the following year. That’s why the U.S. Securities and Exchange Commission (SEC) requires funds to tell investors that a fund’s past performance does not necessarily predict future results and recommends considering other factors before investing in a mutual fund.

But, wait, there’s more! Financisms, of course. Enough for a couple more top ten lists, so let me know if you’d like a follow-up post.  Send me your financisms and I can throw those in, as well.  

And because I couldn’t NOT include these two:

Bonus financisms

The future ain’t what it used to be
(Source: Yogi Berra – okay, maybe this isn’t strictly a financism, but it sure applies to investing).

See #10.

The best guide to our future behavior is our past behavior
(Source: everyone from psychologists, such as Albert Ellis, Walter Michel, and B.F. Skinner, to writers such as Mark Twain.  I first came across the phrase when reading one of my favorite finance books by Jonathan Clements.  I don’t remember which one it was, but I recommend both of the following: How to Think About Money and Money Guide 2016.  You can also access Money Guide for free on his website Humble Dollar).

If you found yourself unable to sleep during the last market downturn and wound up selling stock funds when they were down, you learned something important about how you react to market fluctuations.  You may need to titer your portfolio to include fewer stock funds to the point where you can sleep.

*Disclaimer: a Google search of financisms reveals nothing, but removing the “s” creates a term that, as far as I can tell, has been described as an extreme stage of capitalism.  My use of the terms financism and financisms is unrelated to this definition.