Wed, 24 June 2020
Do you think your own behavior affects your retirement investment management? If you said no, you may want to think again. The most significant risk to your finances is not market volatility or inflation, it’s your own behavior. Over the past several episodes we have explored how our own cognitive biases affect our financial choices and this episode continues that journey. On this episode, you will learn what you can do to make better decisions to ultimately protect your money from its own worst enemy: yourself. What is heuristic?A heuristic is a psychological term for a mental shortcut that allows an individual to make a decision, pass judgment, or solve a problem quickly with minimal mental effort. Our brain constantly uses so much energy that it always looks for shortcuts. Renowned behavioral finance expert, Dr. Dan Crosby, calls this bumper sticker thinking. The 4% rule is a good example of a heuristic used in retirement planning. We need to learn to work around our mental shortcuts and truly think things through. Behavioral risk is the most significant risk to your financesIn finance, there are many kinds of risks. We often worry about volatile markets or inflation. We use diversification to help us lessen the market risk but we often ignore the greatest risk to our finances. The biggest risk to your financial security in retirement is your own behavior. If you can’t control your investment behavior especially during challenging times then your retirement portfolio will suffer. Listen in to learn how to manage your cognitive biases and set yourself up for financial success in retirement. Tips for managing investment behavior
How I manage behavioral risk with clientsWhen I work with my clients I have to help them manage their own behavioral risks. I do this by considering process, strategy, and tactics. Consider what you want your life to look like. What is important to you? Before making any decision, slow down and ask yourself some questions. If you slow down and center yourself you can think through any decision. Think about the decision from all sides. What does success look like? What does failure look like? What are some alternatives that you can consider? Listen to this episode of Retirement Answer Man to hear how you can manage your own behavioral risks. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MANWHAT DOES THAT MEAN?
PRACTICAL PLANNING SEGMENT
COACH’S CORNER WITH B.W.
TODAY’S SMART SPRINT SEGMENT
Resources Mentioned In This EpisodeRoger’s YouTube Channel - Roger That BOOK - Rock Retirement by Roger Whitney Roger’s Retirement Learning Center |
Wed, 17 June 2020
We all have cognitive biases that we have to account for when retirement planning. Although we can never shed ourselves of these biases we can manage them. In this episode of Retirement Answer Man, we continue to explore behavioral finance and how it affects retirement planning. Our minds like to play tricks on us and prevent us from making rational decisions. Listen to this episode to learn how to be aware of those tricks and overcome them so that you can rock retirement. What does bias mean?Before we further explore the subject of the cognitive bias we need to have a clear understanding of the term. Bias means that we prefer one side over the other. We all have our preferences for certain things, sometimes we aren’t even aware of them. Cognitive bias is a systematic error in thinking when people are processing or interpreting information. Cognitive bias can affect our judgment. It is especially important in finance to be aware of these errors in thinking. The biggest obstacle to rocking retirement is a cognitive bias. These 7 types of cognitive bias can impact your retirement planningThere are several different types of cognitive biases that can affect our decision making and impede our judgment.
Good investments plus good behavioral habits will help you rock retirementThe worst part about these biases is we don’t even realize that we have them. The first step in overcoming a problem is to realize that the problem exists. None of us have this retirement thing all figured out. But if you can create good behavioral habits and pair those with good investments you will rock retirement. Be sure to tune in next week to learn how to create a framework to manage your cognitive biases and become a better critical thinker. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MANHOT TOPIC SEGMENT
WHAT DOES THAT MEAN SEGMENT
PRACTICAL PLANNING SEGMENT
Q&A SEGMENT
TODAY’S SMART SPRINT SEGMENT
Resources Mentioned In This EpisodeRoger’s YouTube Channel - Roger That BOOK - Rock Retirement by Roger Whitney Roger’s Retirement Learning Center |
Wed, 10 June 2020
Life planning is one of the hardest things about retirement. Deciding when to retire can be challenging and is a decision based on more than just money. There are various types of mind tricks that we play on ourselves to talk ourselves out of making life big changes. In this episode of Retirement Answer Man, we continue the behavioral finance series by taking an in-depth look at rational decision making. Come join me to learn how you can make more rational decisions so that you can rock retirement. Our biases often get in the way of our life planningThere’s a difference between being rational and rationalizing. We, humans, tend to choose the latter. Our minds often play tricks on us. Instead of making simple choices, we tend to complicate things by letting our biases get in the way. We use different types of biases like status quo bias, anchoring bias, information bias, and sunk cost fallacy to guide our decisions. Many times you know that change is coming, you can see it a mile away, but you still have a hard time navigating that change. Retirement is one of those changes. You have been preparing for it all of your life, but leaving the safety of what is known and what is easy can be hard to do. Don’t let yourself get lulled into the status quo. Has anchoring bias got you stuck in the same place?Anchoring bias is another common bias seen in retirement. People often don’t know how to live a life without constraints so they simply choose to stay in place. They choose not to see the myriad possibilities that are out there. Embrace the total freedom of retirement by exploring all of your options. Listen in to hear an interesting parable to help you understand all the opportunities you have waiting for you on the other side of retirement Are you waiting for more information?Other people are always seeking information to guide their choices. While making informed decisions is important, some keep delaying their decision to retire due to their lack of information. They think that once they have all the information they will finally be able to pull the trigger and retire. But the reality is, we will never have all the information. There is always a gap between the known and the unknown. Do you want to create memories or regrets?The sunk cost fallacy is another way people tend to rationalize themselves out of making good decisions. At your age, you have a lot of sunk costs. Don’t let those get in the way of living your life to its fullest. In the Rock Retirement Club, one of the first things that we discuss with new members is the 5 most common regrets from people on their death beds. Those regrets are:
You don’t want to die thinking about all of those things you wish you had done. Using rational thinking and consciously stepping away from your biases can help you live your life to its fullest so that you can look back at a life full of memories rather than regrets. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MANPRACTICAL PLANNING SEGMENT
Q&A SEGMENT
TODAY’S SMART SPRINT SEGMENT
Resources Mentioned In This EpisodePODCAST - Retirement Starts Today with Benjamin Brandt BOOK - Who Moved My Cheese? by Spencer Johnson Roger’s YouTube Channel - Roger That BOOK - Rock Retirement by Roger Whitney Roger’s Retirement Learning Center |
Wed, 3 June 2020
This month on the Retirement Answer Man show we are diving deep into behavioral finance. Do you consider yourself a rational person? Most of us think we are rational people, but according to Frederick Nitzsche rationality is impossible. However, without rationality, we are bound to make poor financial decisions. That’s why today we’re going to explore our humanness and focus on how we can make better decisions. Listen in to learn how to make better financial decisions so that you can rock retirement. What is behavioral finance?Behavioral finance is an area of finance that attempts to understand and explain observed investor and market behaviors. One question behavioral finance seeks to answer is why do investors sell during bear markets and buy during market peaks? Behavioral finance tries to explain how our humanness affects the markets. When we study behavioral finance we have a better understanding of those things about investing that don’t make sense. How do traditional finance and behavioral finance differ?On the flip side, traditional finance assumes that investors are rational, optimizing market players. Modern portfolio theory is based on the premise that every investor is going to try to maximize returns and minimize losses in their portfolio. The sweet spot that every investor seeks is called the efficient frontier. So, according to traditional finance thinking, an investor would never deviate from the efficient frontier. Traditional finance assumes that an investor can filter information and assess the tradeoffs in order to maximize utility. But the reality is, self-deception and social influence have a huge impact on our decision making. What does Maslow’s Hierarchy of Needs have to do with finance?Maslow’s Hierarchy of Needs plays a role in our decision making as well. Many of us have learned how quickly we can move down the pyramid from self-actualization to base needs during the recent turn of events in the world. Our own pessimism and optimism have so much to do with where we lie on this psychological chart. We use self-deception, irrationality, and bias to block our ability to make rational decisions. This month my goal is to help you learn to make reasoned decisions even with all of your cognitive biases. Should market volatility affect plans to rebalance?A listener asks if she should continue her plans to rebalance her portfolio amid the recent market volatility. There are two different ways to approach rebalancing. Some choose to rebalance according to a date on the calendar. Others choose the threshold approach which means they rebalance when their portfolios begin to tip too far in one direction or the other. David Stein recommends choosing one approach and sticking with it. Listen to this episode to see what he has to say about rebalancing, taxes, and other listener questions. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MANWHAT DOES THAT MEAN?
PRACTICAL PLANNING SEGMENT
Q&A SEGMENT WITH DAVID STEIN
TODAY’S SMART SPRINT SEGMENT
Resources Mentioned In This EpisodeBOOK: The Behavioral Investor by Dr. Daniel Crosby BOOK: The Laws of Wealth by Dr. Daniel Crosby Money for the Rest of Us podcast with David Stein BOOK: Fix This Next by Mike Micalowicz Roger’s YouTube Channel - Roger That BOOK - Rock Retirement by Roger Whitney Roger’s Retirement Learning Center |