You’ve Got a Lizard Brain
Well, not exactly. But close enough that you need a written investment plan to keep some basic instincts in check. Mammals and reptiles are believed to have evolved from a common ancestor called an Amniote. Obviously we’ve evolved significantly since then. We’ve dominated the planet, eliminated almost all threats from potential predators, and now live civilized with comforts our ancestors could never imagine.
In many ways, the evolution of our brains has not kept up with the advances in modern civilization. Our brains are still wired for an earlier version of us. For example, there was a time when being constantly alert for predators or protecting your stored valuables (food, animal skins, tools) could literally mean the difference between life and death. Similarly, taking risks (hunting large game, exploring new lands, eating new plants) could result in huge rewards.
So we’re hardwired to avoid danger, to guard against loss, and to chase big rewards. Great instincts for a caveman. Not always so great for an investor.
How Primal Instincts Can Sabotage Successful Investing
Of all the primal instincts, the two most damaging to investors are fear and greed.
Fear
Personally, fear is a really powerful motivator for me and it’s a real risk to my portfolio if I don’t keep it in check. If you want to know where my fear comes from, I wrote about it in 002 | The Great Depression vs. The Great Debacle: How My Family Created My Conflicting Money Mindset. The potential danger of a stock market crash and losing your hard-earned savings can cause an overwhelming sense of fear, resulting in irrational investment decisions. The worst is probably never investing at all because “I could lose money”. I’ll never benefit from any market gains and my savings will likely erode over time due to inflation. Nearly as bad is panic-selling during a market downturn. In this case, I’m selling assets at a depressed price, then missing out on the gains of the subsequent market rebound.
Panicking and deviating off course was the single biggest financial mistake I’ve ever made.
Prior to the 2008 financial crisis, I managed our portfolio myself. I didn’t know much back then. But I held mostly index funds and we did okay. But after that crash from 2008-2009, I panicked and hired a financial advisor. Unfortunately, he ended up being terrible. Not only did he take 1.5% annually for a fee, he pulled us out of index funds and kept us in garbage one-off stocks. It took 3-4 years for me to finally fire him and take our money back. The experience was so traumatic that I was paralyzed by fear. I subsequently left the money in cash for another year or two before finally reinvesting it. Looking back, panicking and deviating off course was the single biggest financial mistake I’ve ever made. Sure, hindsight is 20/20. But if I knew then what I know now, we’d have a significantly more comfortable retirement than we do. The bright side is: this was a learning experience. I will never make that mistake again and I’ll make sure our kids don’t either.
Greed
Greed works in the other direction. Our instinct to pursue high-risk, high-reward activities can have equally devastating effects as fear can. It’s easy to get caught up in hot tips and market hype. Hot tips result in investing in risky stocks/ventures or get-rich-quick schemes that cause our money to vanish when they fail or turn out to be scams. You may remember the GameStop (symbol GME) episode from 2021, when Reddit traders squeezed the short sellers and sent the stock price soaring. A handful of people got rich. A whole bunch of latecomers chasing quick money lost big when it collapsed.
Market hype is a subtler form of “hot tips”. It draws us to only invest when the market is up or doing well. We get caught up in the hype of a bull market and stocks surging, and only then do we decide to buy in. The problem is that by the time the market is up, we’ve already missed out on a significant portion of those gains. That doesn’t mean you shouldn’t invest when the market is up, it means you shouldn’t invest ONLY when the market is up.
The News, Social Media, and The War for Your Attention
News and social media are largely funded by ads. Every click or view means more ads served and more revenue. So it’s very profitable to keep us engaged as much and for as long as possible. This is often referred to as “the war for your attention”.
What these companies have found is that negativity (fear, anger, tragedy, etc.) engages us best. For example, a study of ~105,000 Upworthy.com headline variations (Nature Human Behaviour, 2023) found that each negative word in a headline raised click-through by about 2.3%. Fear gets the click!
Our brains are not designed for the onslaught of information available to us today. Tribal humans took turns watching out for danger so that the rest of the tribe could have peace, rest, and focus on other activities. But nowadays the news and social media try to keep us in constant states of fear and anger. To make matters worse, algorithms designed to serve you content to keep you engaged send us down a rabbit hole of biased, and often false, information.
The financial news is no different. It’s full of so-called “experts” spewing opinions about the market and the economy, with one single goal in mind: to get you to click so they earn ad and subscription revenue. CXO Advisory tracked 6,584 stock market forecasts from 68 experts (2005-2012) and found that average accuracy was just under 47%; that’s worse than a coin flip! That makes sense – if these “experts” could predict the future, they’d be wealthy beyond their wildest dreams and have no interest in selling you articles about it. But here we are bombarded with their predictions.
Our lizard brains don’t stand a chance without a written plan to keep the headlines at bay.
The Effect On Your Portfolio
Compounding is so powerful that the human mind can hardly comprehend without working through examples. Check out “The Time Tax / The Cost of Delay” section of 005 | The Urgency of Now: 3 Steps to Instant FI Momentum for the classic example of compounding. On the flip side, it’s compounding that magnifies seemingly small mistakes into much larger mistakes. Let’s take a look at a couple of examples: the investor return gap and panic-selling.
Investor Return Gap
Morningstar’s study Mind the Gap 2026 looked at the 10 years ending Dec. 31, 2025 and found that the average US mutual fund and exchange-traded fund earned 9.9%. But investors only earned 8.7% due to poor timing in their buy and sell decisions. That’s a gap of 1.2% annual earnings!
Morningstar found two main causes for this gap.
- Emotional timing – Investors buying at market peaks or selling during market downturns.
- Volatility and Fund Type – Sector equity funds had among the widest gaps because ups and downs are wider. Thus, investor emotions run wilder. Allocation funds (like target date funds or auto-balancing funds) have a much smaller gap because they are generally more stable and handle rebalancing automatically.
1.2% annually may not sound like a lot, but let’s look at what it does to a portfolio over the years. We’ll use Morningstar’s numbers to illustrate below and to keep it simple, we’ll assume no withdrawals, no additional investments, and a starting balance of $500,000.
Table 1: The Cost of 1.2%
| Fund return (9.9%) | Investor return (8.7%) | Gap | |
|---|---|---|---|
| $500,000, 10 years, no withdrawals | $1,285,129 | $1,151,504 | $133,625 |
| $500,000, 20 years, no withdrawals | $3,303,116 | $2,651,922 | $651,194 |
| $500,000, 30 years, no withdrawals | $8,489,864 | $6,107,399 | $2,382,465 |
Wow! That’s $2.4 million left on the table from the same $500,000, and it comes from the average investor’s timing, not just the worst panic-sellers.
Panic-Selling / Market-Timing
Panic-selling is really market-timing, and it sets you up to fail twice: you have to sell before the drop and buy back near the bottom. Getting either one of these right is nearly impossible, let alone nailing both.
To illustrate, let’s use the same numbers from above to compare holding steady vs. panic-selling during the most recent major downturn – Covid. Again, we’ll assume no withdrawals, no additional investments, and a starting balance of $500,000. In the table below, User A simply does nothing during the Covid market downturn, leaving their money invested. User B, on the other hand panic sells at market low in March and buys back in once the market has recovered to pre-Covid-downturn level in August.
Table 2: The Cost of Panic-Selling During Covid
| Timeline | Event | User A Holds Steady | User B Sells at Low, Buys Back at Recovery | Gap |
|---|---|---|---|---|
| 2020 | Starting Balance | $500,000 | $500,000 | n/a |
| Mar. 2020 | Covid Market Low (~34% drop) | $325,000 | $325,000 | $0 |
| Aug. 2020 | Covid Market Full Rebound | $500,000 | $325,000 | $175,000 |
| Nov. 2026 | Current Day (9.9% annual returns) | $880,960 | $572,624 | $308,336 |
| 2040 | 20-years later (assuming 9.9% annual returns) | $3,303,116 | $2,147,026 | $1,156,090 |
| 2050 | 30-years later(assuming 9.9% annual returns) | $8,489,865 | $5,518,412 | $2,971,453 |
Wow again! That’s almost a $3 million difference over 30 years. That’s substantial when you consider User A could probably retire about four and a half years earlier than B in this scenario.
NOTE: These are very simple examples to illustrate the effects our emotions can have on our investing. Starting with $500,000 and never investing more is not how a typical FIRE journey goes. Most of us start with near $0 and steadily add to it. The 9.9% returns number is accurate for the 10 years ending with 2025, according to Morningstar. But, it is likely not accurate for 30 years of future projections. Further, return rates are almost never smooth, especially over longer periods of time.
Your Defense: A Written Investment Plan
Why It’s Needed (In Case You Didn’t Read Above)
You need a written game plan to keep you on track and guide you through ups and downs. My last post, 030 | Retirement Danger Zone: Sequence of Returns Risk Explained, asked the question “What’s your plan if the market drops 30% in the first year(s) of retirement?” A written investment plan is a critical tool for surviving that scenario.
Having a written plan makes you resilient to fear, greed, or any other emotion/instinct. And you need it no matter how well you understand the pitfalls. It’s easy to be calm when times are good. But I promise you: You don’t know how you’ll react to a real market downturn until you actually experience one. For most people, watching their balance drop for weeks in a row makes the temptation to sell overwhelming.
You don’t know how you’ll react to a real market downturn until you actually experience one.
Even during “normal” markets, it’s easy to slip into an “oh the market’s trending down right now so I won’t invest” or a “the market’s going up, I should start investing” mentality. Like we saw above, this is nearly as devastating as panic-selling over time.
What Is It?
Simply, it’s a written plan that states how you’ll manage your investments. Its purpose is to prevent emotional decisions during market swings or life events. It can be as simple or complex as you need. Here are the main components of a written plan:
- Goals (Optional) – Since you’re reading a FIRE blog, I’m guessing early retirement is your main goal. But you may have other goals like purchasing a home, sending your kids to college, and so on. A clear understanding of what you’re investing for is critical for allocating investments (account types and asset classes), minimizing taxes, and meeting timelines.
- Contributions/Withdrawals (Recommended) – Set clear amounts and timing for: contributions if you’re in the accumulation phase, withdrawals if you’re retired, or maybe that you’ll do neither if you’re Coast FI. See 022 | What is FI / FIRE and the Different Types of FIRE? for the different types of FI/FIRE. In the case of withdrawals, it may be helpful to specify a strict set of allowable / non-allowable uses so that you’re not tempted to spend recklessly. For example: withdrawals are only to be made for budgeted expenses, they may not be used for: loans to family/friends, unbudgeted luxury items/travel, alcohol, etc.
- Asset Allocation (Required) – Document how your portfolio will be invested across different asset classes (e.g. stocks, bonds, cash-equivalents, etc.). For example, 70% equities / 30% bonds.
- Rebalancing Plan (Required) – State when and how you will review and rebalance as needed to stay invested in the ratios defined above in “Asset Allocation”.
- When – Set a specific date to do this. For example, annually on January 1, your birthday, wedding anniversary, the first day of every quarter, etc.
- Where (Optional) – Document which assets belong in which account types. For example, you may want bonds and CDs in tax-deferred or Roth accounts since they generate taxable income.
- Thresholds (Optional) – How far off of your set ratios you need to be in order to justify rebalancing. For example if you specified a 70/30 portfolio above, are you going to rebalance if you’re currently at 70.5/29.5?
I’ve marked the components that I believe are the minimum required. NOTE: “Optional” just means you don’t have to document it; you should still know it. For example, if your only goal is to retire early, or your goals are crystal clear in your head, then you don’t necessarily have to put that in writing if you don’t want to.
Having a pre-determined asset allocation keeps you from panic-selling, high-risk impulse investments, or just drifting off your allocation ratios as markets change. Setting a date (or dates) to review/rebalance ensures you actually do it and avoids the market-timing temptation. Specifying timing and amounts for contributions/withdrawals guards against all of the above, including the Investor Return Gap, and helps keep your investments and spending on track.
Our Written Plan
If you’ve been reading this blog, you’ve probably picked up on my admiration for the FIRE community’s transparency. I try to model that too, so I’ll share our actual plan:
- Goals – This one is simple for us. I’m retired, Mrs. FIcology is still working because she wants to and so we have health benefits. FIcology Boy & FIcology Girl (FI Boy and FI Girl for short) are both through college, gainfully employed, and living on their own. So our goals are simple:
- Our portfolio needs to survive us.
- Enjoy our remaining years reasonably unrestrained (travel, friends, concerts/events, charity, health).
- We need to sleep at night (translation: err on the side of caution).
- Ideally, leave FI Boy & FI Girl some inheritance to boost their financial independence. Note: We’re only doing this because they’re both on track to do amazing without it. If they weren’t, an inheritance would be a curse to them, not a gift.
- Withdrawals – I’m just going to come clean and admit that we don’t have anything written here. Yes, I get the hypocrisy of marking this component “Recommended” and then not doing it, lol. In fairness, we have an annual budget and we do detailed expense tracking. From those, it’s understood that we’ll withdraw as needed to fund our expenses and that we’ll keep 1-3 months of expenses in our checking account. NOTE: checking is separate from the cash equivalents in our portfolio. I shared our expenses in 028 | Expense Tracking is Critical for FIRE, if you’re interested.
- Asset Allocation – This will be very specific and custom for each individual or family. Priorities, risk tolerance, phase of life, and health status are just a few of the possible factors. So, please DO NOT adopt this as your own.
| Asset Type | Target | Actual (Current) |
|---|---|---|
| Equity – US | 50.0% | 50.5% |
| Equity – International | 12.5% | 13.0% |
| Bonds (mostly US Treasury) | 25.0% | 23.0% |
| Alternatives (REIT, Gold, Crypto) | 5.0% | 4.0% |
| Cash Equivalents (Money market, CDs, Short-term treasuries) | 7.5% | 9.5% |
- Rebalancing Plan
- When – I review this quarterly.
- Where – I distribute assets across the four account types / buckets as tax-efficiently as possible. See 012 | The Four Buckets: Mastering Your Investment Toolkit for FI for more info.
- Thresholds – I don’t have set thresholds for rebalancing. But depending on the category, variations of 2-4% would trigger me into action. I don’t think the current allocation warrants rebalancing.
Wrap Up – Call to Action
A written investment plan is critical to a successful FI/FIRE journey. If you don’t have one, I encourage you to start thinking about it. You don’t have to do the full writeup all at once. Pick one or two components that are important to you and jot down your thoughts. Then just evolve it on your schedule as you continue to learn and grow along your journey.
This stuff may seem overwhelming, but anyone can learn and do it. No one starts out knowing everything; we all start one step at a time. That’s one thing I love about the FIRE community – there’s always help for all levels and you can always improve from where you’re at. I love you and you can do this!
Do you have a market moment where a written investment plan would have helped you? Let me know in the comments.
That’s a wrap! Check out the FIRE Calculator while you’re here. And if you like this, please share with a friend and follow me on Facebook and Instagram.
-The Professor
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