During the American Revolutionary War, the British Army and the American colonists faced off in the Battle of Bunker Hill. After plenty of combat, the Americans retreated, so technically, the British army won the battle. However, they endured far more casualties than the Americans. Additionally, most historians agree that the experience fundamentally changed the British army’s approach for the rest of the war. The British may have won the Battle of Bunker Hill, but they lost the Revolutionary War.
The Battle of Bunker Hill is a classic example of what’s known as a Pyrrhic victory. Named after King Pyrrhus of Epirus, a Pyrrhic victory refers to a high cost victory that turns out to be a net negative in the long run. This is where the expression, “winning the battle, but losing the war”, comes from.
While this example happened over 200 years ago, we’re often faced with our own Pyrrhic conflicts on a daily basis. Here are some financial examples of short term wins with long term negative repercussions:
Winning the Battle: Moving on from out of favor asset classes
…Leads to…
Losing the War: Increased risks associated with having an undiversified portfolio
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Winning the Battle: Spending the difference when you get a raise at work
…Leads to…
Losing the War: Your savings rate lagging the lifestyle it will eventually need to support
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Winning the Battle: Having more to spend now by not purchasing insurance
…Leads to…
Losing the War: Financial ruin when you have no insurance coverage during an emergency
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Winning the Battle: Selling to “stop the pain” when the market goes down
…Leads to…
Losing the War: Missing the recovery and subsequent gains
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Winning the Battle: Buying a gigantic house you can barely afford to impress your friends/family
…Leads to…
Losing the War: Higher expenses that prohibit appropriate savings habits
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Winning the Battle: Replacing recently underperforming strategies with recently outperforming strategies
…Leads to…
Losing the War: Perpetual underperformance, as you chase your own tail
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Winning the Battle: Saving money by doing your own will
…Leads to…
Losing the War: A potential burden for your heirs after you’ve passed away
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Winning the Battle: Changing your Investment Policy Statement to accommodate current market conditions
…Leads to…
Losing the War: Reactionary decisions instead of a process driven by your goals, time horizon, and personal circumstances
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Winning battles feels good. Losing wars doesn’t. Learning to be okay with losing some battles in the name of your greater purpose is a critical component to success in life.
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