Regret Minimisation as a Decision-making Tool

Financial planning has a feedback loop longer than most other disciplines. The consequences of our decisions can take decades before they become fully evident to us. This period can be filled with uncertainty, doubt, and the fear of making mistakes.

Having seen many people arrive at retirement with less than they need, this reality is especially clear to us. Unfortunately, human nature doesn’t help the cause. Our instincts, perfected over centuries of survival, lead us to make suboptimal decisions that don’t serve our interests in the modern world of money. 

The result? Regret, not for us but for our future selves who must deal with the consequences.

A New Lens: Regret Minimisation

Regret is an unavoidable emotion in life, and it teaches us lessons that serve us well in the future. It is especially useful for activities where the feedback loop between decision and consequence is short. However, when this feedback period becomes decades-long, as it often does with financial planning, it is wise to consider how to minimise future feelings of regret ahead of time rather than wait to learn the lessons the hard way. 

This decision-making tool is one that the well-known founder of Amazon, Jeff Bezos, has often used. For example, he used it to decide to leave his high-paying job on Wall Street and start Amazon in the early days of the Internet. He sought to minimise the potential regrets he might have had later in life by seizing a unique opportunity, even though it meant taking on significant risks and uncertainties at the time.

While it may sound obvious that we should try to minimise future regret, it requires intentional thinking to view decisions through this framework. If not done intentionally, we will likely fall back on our default mode of prioritising current needs over future ones.

The Mindset as a Financial Planning Tool

Many financial decisions become easier to make when viewed through this framework as it forces us to place ourselves in the shoes of our future selves, allowing us to consider better the complex tradeoffs that any financial decision involves.

Save more for retirement, or improve your daily life now?

Work hard now so that you can travel in retirement, or spend more time with the children while they are still living at home?

Stay in the well-paying job, or start the business you are passionate about?

Buy a new car, or send the children to private school?

We should always be on the lookout for mindsets and methods to become more familiar with our future identity, and considering what we will least regret is a powerful exercise. While it gives no guarantee that our decisions will turn out well, it forces us to ask more relevant questions about the tradeoffs involved.

Life is Not a Dress Rehearsal

Choosing the wrong meal for lunch may lead to frustration, but there will be many more opportunities to correct the decision. It’s in the big decisions that we want to give ourselves the best chance of making smart and well-informed decisions. Unfortunately, these decisions are the ones that come around infrequently and which most of us make only a few times in our lives.

Realising that any major regrets we end up with are ones we’ll need to make peace with, we want all investors to have the best tools available when the big decisions present themselves. Regret minimisation is a thinking tool every investor should become familiar with. As financial advisers, we provide the technical insight needed to help make the right choice in many of the decisions you face, and we hope that they serve both your current circumstances and your future self. Life is not a dress rehearsal, and when it comes to regrets, less is more.