Relationships, Trust & Emotional Investment Accounts

Bryan Chan

As wealth advisers, we are always searching for new ways to communicate well-established ideas in a way that helps clients visualise, understand, and internalise important concepts. Metaphors, I have found, are particularly helpful.

With some reflection, I think we can sometimes make interesting connections.

Steven Covey’s Emotional Bank Accounts

In 1989, Steven R. Covey, who wrote ‘The Seven Habits of Highly Effective People” introduced the concept of emotional bank accounts in his book.

The idea is that in our relationships with each other, we maintain balances of trust in an account with an invisible ledger. We make deposits to this account whenever we take actions that build trust, such as keeping commitments or showing appropriate empathy. Conversely, we make withdrawals when we take actions that break down trust, such as showing disrespect or being dishonest.

The higher the balance we maintain, the deeper the trust, and the lower the balance, the weaker the mutual understanding will be. We could even run a negative balance if we withdraw so much that we go into overdraft. Of course, that does not bode well at all for any relationship.

Emotional Investment Accounts

Reflecting further, I have come to see that a bank account, whether for savings or checking, is a good parallel but perhaps slightly too simplistic. In my view, relationships and trust are better likened to emotional investment accounts.

Here’s why:

(1) The Right Person or Portfolio Is Important

To begin with, in both building a trusting relationship and investing successfully, fit is paramount.

Although with sufficient effort we might be able to connect with almost anyone, there are some people whose personality makes them easier to build trust with, given our own values, preferences, and tendencies. Expanding our comfort zone aside, choosing the right people with whom we attempt to build these deeper relationships will determine in no small way how successful we will be, and how pleasant we will find that journey.

In investing, ensuring that we have the right portfolio based on our needs and values is equally important in helping us to reach our life goals, and in a comfortable manner.

Making sure that the portfolio we choose is what makes sense for our personal situation is key.

(2) Relationships Are Dynamic, Like Markets Are Volatile

Unlike cash kept safely in a bank account, relationships with people have their ups and downs.

Despite our best efforts and intentions when interacting with others, life often gets in the way. There will be periods when things go well, and we celebrate achievements, positive life events, and share grateful moments with those around us. However, there will also be stressful situations when it is challenging to treat others as well as we should, simply because we are under pressure and may not be coping too well ourselves. There will also be instances where other parties hurt us, even when we have not wronged them.

Similarly, with an investment portfolio, volatility is usually not something that can be completely avoided. There will be wonderful days and days when markets are erratic and frightening.

(3) Your Responses in the Tough Moments Matter Most

How we respond to these ups and downs matters significantly. Our actions will affect our relationships to varying degrees depending on when those actions occur.

For example, when everything is going well, treating others right is easier, and it builds trust slowly and incrementally. At the same time, making mistakes in those budding relationships is often more forgivable. Small, accidental transgressions, like water off a duck’s back, may go unnoticed or be forgotten once they have passed.

However, if we repeat the same actions during a rough patch in that relationship, they could lead to larger conflicts and, ultimately, spell disaster for trust. In those same tough moments, even when it is hard, doing the right things can be some of the best opportunities to reach out, and build deep and meaningful connections.

Investing is similar. In upward-trending bull markets, keeping invested and continuing to invest is easier, and mistakes are a little less damaging. And in falling bear markets, while selling can critically impair a portfolio’s value, investing more and consistently can yield fabulous results.

(4) Consistency and Compounding

It may seem obvious, but consistency in building trust is crucial, not just because it takes a long time to do so, but also because trust can compound.

Part of building trust involves committing to treat others right, a commitment that can only be displayed through consistency. Thus, trusting relationships are built through a series of coherent and continuous actions over a long period of time.

Trust also gets easier with practice, and it becomes easier to trust someone who has already earned our trust or established that they can be trusted. Trust begets more trust, while unfortunately, distrust begets further distrust.

Likewise, investing, when done the right way, benefits from consistency and compounding. Investing and staying invested over lengthy periods in the right portfolio is where reliable returns are reaped.

So, what do you think?

Perhaps our relationships really are more like emotional investment accounts than they are like emotional bank accounts. If that’s the case, let us remember to invest in them and to keep on investing.

This is an original article written by Bryan Chan, Client Adviser at Providend, the first fee-only wealth advisory firm in Southeast Asia and a leading wealth advisory firm in Asia.

For more related resources, check out:
1. The Smallest Paycheck That Will Keep You on Track for Retirement
2. The Magic of Compound Interest
3. How to Build a Good Wealth Plan

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