Love and the stock market

I had a wonderful dinner Saturday night with a group of women friends from my church. Every one of their lives has not gone according to plan. Either through divorce or death, they are not enjoying the golden years of travel and adventure with their spouses as they had planned.

So I mulled over the role of expectations in our lives. From 1991 to 2000, an investment in the S&P 500 more than tripled. Unprecedented. Before anyone noticed that unprofitable internet companies cannot support continued growth, investors got accustomed to 30% p.a. returns. They had expectations that the market would continue to reward them handsomely and they:

1. Saved less
2. Spent more.
   The market spent the next three years taking back much of those gains. Everyone's expectations changed and they adapted in a variety of ways. Some were not pretty, like refinancing and taking the equity out of their homes.

I advise my friends (and myself) to look at whether our expectations were fair to begin with. Is it fair to measure our lives based on expectations that proved illusory? The flaw in my logic is that it is logic. Relationships aren't based on logic. But there seems to be a growing body of research suggesting marriages that last 30, 40, 50 years are the exception. The institution isn't necessarily well suited to adapting to changing conditions. And people change and situations change.

So if our expectations are that situations will change and we must be willing to reinvent our lives, maybe we will be better equipped to build new and different lives based on a positive narrative of what is gained, not what is lost. Wise investors learn this lesson and profit from it. Why not the rest of us?
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