Many long term residents of Seattle, through no skill of their own, have been buffered from the severity of losses many other parts of the country experience.
For a multitude of reasons, real estate has always (’08-’11 excepted) increased in value and received multiple offers at sell time. The economy has usually been vibrant, diversified, and growing.
Yet we are now entering a period that many other longtime Seattleites have never witnessed:
- Urban density projects meant to alleviate the demand for real estate having an inverse effect (higher values for newer multiple units than the single detached home that was torn down).
- An economy that continues to be more vibrant than this region already had, bringing in higher educated workers commanding bigger salaries.
All this may make you feel either pretty dang smart if you were ‘already here’, had ‘already bought’, and were ‘already established’.
It’s a result no different than seeing gains in your paper assets.
The risk of overconfidence becomes a very real threat during times and places such as these, when an investor’s portfolio had sustained gains in US stock and bond markets.
It’s called Outcome Bias, or, ‘the effect of confusing luck with skill. Confusing coincidence with talent.’
This can have a profound effect on our future decisions: When we confuse the two, we may not pause to consider risks to a decision because, hey, look at past outcomes!
And while financial success indeed can be attributed to making right choices and nurturing financial self discipline, don’t negate the weight that a coincidental ‘time’ or ‘place’ may have.
How to do that? By having a rules based portfolio in place to immunize your balance sheet (including your home) from your Outcome Bias.
The most effective way to do that is to work with a financial planner to create a financial plan that informs your future investment decisions.