That approach fails in the real world. Even if you do all the right things, it only takes a few mistakes to undo all your prior efforts. This truth is counterintuitive: Avoiding errors is more important than scoring wins. This wonderful insight came from Charley Ellis in a 1975 Financial Analysts Journal paper titled “The Loser’s Game.”1 Investing,

Behavior is the single biggest problem for most investors, and it is the area where financial advisors deliver significant value. Vanguard has studied this and termed the help “Advisor’s Alpha.”403 They estimate its impact is as high as 3% annually.

Doing this accomplishes several things: First, it locks in sufficient wealth to eliminate a lot of life’s money-related worries. Second, it still leaves you with plenty of upside if the best-case scenario turns out to come true. And third, it protects you from a lifelong regret in case of a dotcom-like collapse (I know, that’s impossible!).

If this sounds a bit conventional, well, it might be, but think about it this way: The goal of life is not always to maximize your returns; sometimes, potential gains must be balanced against the possibility of losses. That’s why we need to occasionally consider minimizing regrets.

Avoid Regret: How And When To Sell Big Winners

To manage your personal finances properly, you need only follow three rules: No. 1. Spend less than you earn. No. 2. Prioritize investing for your future. No. 3. Figure out what matters to you, then spend accordingly.

A decade later, Ellis expanded this thesis into his classic book Winning the Loser’s Game.2

With the exception of one or two years per century, bonds serve as a reliable, non-correlated counterweight to equities.

Consider traditional portfolios that hold a dozen mutual funds or ETFs. To harvest a loss, you sell the funds in the portfolio that are down for the year. You then replace them with a similar fund. The realized gains in the portfolio can then be offset (in part) by that loss. Done right, it can reduce capital gains tax costs in an average year by