How to Make Investing a Habit

Watkins - Persistance

How do you make investing a regular part of your life?

How can you increase you’re odd of financial security?

The answer is… make it a habit!


The past few weeks, I have been digging through The Power of Habit by Charles Duhigg. This book should be required reading for all as it really helps shed some light on how we make and break habits.

Why are we failing to consistently go to the gym, or read more, or eat better?

Why are we unable to stop eating fast food, stop spending money, or stop drinking?

Why are we unable to save every month, or make time to invest?

The answer to all of these questions is that we have instilled habits that are derailing our own success. These habits can be both good or bad and it is our responsibility to create habits for bettering our future self.


In the book, Duhigg explains a project MIT conducted on mice. The mice had chips implanted to monitor their brain functions, they were tested by running an identical maze to search for a reward (cheese). The more the mice ran the maze, the faster they ended up finding the cheese. If the maze was changed in any way, the mice slowed down and took longer to navigate. So what happened in this project that changed how the mice progressed through the maze?

The answer is quite simple; once the mice had created a “habit” of finding the reward, they could simply switch their brains off and automatically travel to the reward. If their brain had already analyzed the maze before, and a familiar trigger went off that told them they were in a familiar place, the rest of the maze was navigated on autopilot. Once the maze changed, the mice had to re-learn the environment and start fresh.

Duhigg - Habit Loop

If we think about this in our everyday life you can see the parallels. If you spend all the money in your bank account at the end of every month, you might not even know your overspending. You have formed a habit of spending everything you earned for the benefit of consumption. The trigger is receiving a paycheck, the behavior is making a purchase, the reward is being able to use/consume the product.


Habits are formed once our brain connects an initial trigger to a reward at some point in the future. Once the trigger is recognized by the brain, we automatically revert to finding the reward. We then develop a craving that makes us want the reward again. Once the craving is formed the habit is created.

Think about it like getting dessert at a restaurant. The cue is the menu being presented in front of you and the reward is tasting the treat. You probably have a craving from prior experiences eating dessert, so you constantly have a habit loop of seeing a dessert that looks good, ordering the dessert, and consuming the dessert (cue, routine, reward). The craving for sugar throws you back to step one (cue) once you see the menu at the next restaurant. I think if you go back to my 72 Hours post, this would be your instinctual brain taking over. The process look’s something like this:

Habit Forming Gif

Here’s an example we can all relate to; our alarm goes off, we hit the snooze button and get rewarded with another few minutes of comfort. You then oversleep, skip a morning workout, skip breakfast, etc. etc. etc….

Image result for habit cycle

You can literally apply this logic to any part of your day and see how it works:

  • Bad day at work, crack open a beer, feel somewhat relieved
  • Get paid, spend our paycheck on clothes, feel happy with our purchases
  • It’s lunch time, you go out to eat, feel happy with getting out of the office
  • Phone rings, check your phone, read your e-mail/text messages

You could literally do a million of these habit loops but the key here is to identify how you can better prepare yourself to form good habits.

So what can you be doing to create good investing habits and start securing your future?

First, you need to identify a reward that you want (saving money). Next, you need to find that “trigger” that makes you take action (getting paid). Then, set up a routine to bridge the two together (transfer money to savings). Your goal should be to simply take the following chart and create a process you can repeat. What is going to be your cue, what is the routine, and what is the reward?

Image result for habit loop

I have found working in this order to be most effective as it’s more focused on what the end result will be:

  1. The goal of my new habit is: __________ (reward)
  2. To start my routine I will: _____________ (trigger/cue)
  3. To achieve my goal I will: _____________ (routine)

My reward is less financial stress and my trigger is simply setting calendar reminders for myself at the beginning of each month. I achieve the reward by monitoring my investments and personal savings monthly. This helps me make sure I have made any necessary contributions to retirement accounts, organized my taxes, review my investments and pay all my bills.

Now, if you need a more hands-off approach to investing for the future, look for automation. You don’t have to take time out of your day to invest, instead find a way where its “out of sight, out of mind.” Here are a few things to make it easy.


First, Automate Your Investments:

Whether it’s contributing to your 401k plan at work or set up an automatic bank transfer each month, if you can remove the friction in making a contribution you will begin to build up a nice nest egg. “Set it and forget it” comes to mind! Just make sure you keep with it. You can use this same process for accumulating an emergency fund.

Get paid, automatically contribute to a 401k retirement plan, grow wealthier


Second, Increase Your Contributions as Your Earnings Grow:

Pick a set period of time to reflect on your current compensation. Did you get a raise in the past 6 to 12 months? As your compensation climbs over time, so should your contributions towards your future. Simply increasing your 401k contribution by 1% each year will dramatically increase your savings at retirement. Most 401k companies provide this service for free.

Get a raise, increase 401k and savings contributions, grow wealthier


Third, Make Paying Off Debt a Priority:

I have a few young clients who were big advocates of making their debt a priority. Simply using their increased compensation or bonuses at year end to advance debt payments, they were able to pay off their mortgage, credit cards, home equity loan, and cars before they hit 50 years old. Advancing principal payments on your mortgage, home equity loan, or other high-interest debts is a great way to improve your net worth.

Get paid, pay additional principal on debt, grow wealthier


There are dozens of other options for saving but start with the simple things. You’re not just going to wake up one morning as a wild saver if your not already one. Instead, you will start investing and saving for the future little by little. Once the “bug” bites you and a habit is formed, you are set. You just have to start taking the necessary steps today to get started and form the habit of saving. Automating your contributions and savings are excellent ways of forming habits you won’t even realize are happening.

Think about it like exercising; you will never be able to run a marathon if you just sit around and think about running marathons. You have to put the time in upfront to see the results. It takes countless hours in the gym, going for a run, and serious conditioning to make it a success!

Undoing a habit is another monster in and of itself. I plan to write another article in the future on correcting your bad habits. For now, focus on what you can do to create them!

Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Choosing a Financial Advisor

Churchill - Results

Why do most individual investors hire a financial advisor?

Why should most individual investors hire a financial advisor?

These are fundamentally different questions that result in radically different answers.


Financial advisors are hired for a myriad of reasons. Some investors choose an advisor for improving the investment returns while others choose advisors for helping towards some future goal. There really is no wrong answer to why you choose to work with one but the most important question is why should you choose to work with an advisor.

As an investor, we are choosing to turn over our life savings into the hands of another person. This person, the advisor, then has the ability to invest your money on your behalf. If you think about that for a minute, its kind of scary. You are handing your life savings over to a stranger for them to do what exactly? Is it your responsibility as the owner of the assets to make sure that you do your part to choose the right advisor. So how do you know if your working with a quality financial advisor or a used car salesman?

The first and most important reason is to focus on what the advisor is telling you to do. Any quality advisor should take time to meet with you, at no charge, to explain what services they can offer. Normally this introductory meeting involves a lot of Q/A between you and the advisor to learn about each other. I would recommend during this meeting you ask them a few simple questions.

  1. What is your investment process?
  2. How are you compensated?
  3. What is your background (licenses, certifications, educations)?
  4. Why do you do what you do?

Let’s start with the last question first, “why.”

I honestly think this is the most important place to start. I find a lot of advisors have “plain vanilla” responses to why they are in the industry. I once heard an advisor say “I really like numbers and helping people.” I’m pretty sure a 5th-grade math tutor can say the same thing. Your goal from minute 1 should be to find your advisors “why.” Think about this from another angle. Who would you rather perform a surgery on you, a doctor with a passion for his work or one who cannot wait to go home?

I have learned as my career has evolved that you have to have a passion for what you do.  My old corporate finance job sucked; the multi-level management, phone call scripts, and the quantity over quality approach drove me to quit. And I’m not the only one. Still, thousands of mindless stressed, and unhappy financial advisors sit on the other side of the desk of investors every day. It’s terrifying to think about but your basically playing Minesweeper trying to determine if you’re picking a good advisor.

Image result for minesweeper

Source: Google Images

With a job change, finally found what I enjoy. I now spend countless hours reading about the markets, listening to investment and financial planning podcasts, and spend a lot of my free time writing all these posts for the good of others.

My passion stems from being burnt once by a “stock tip.” When I was an uneducated college student, an advisor recommended me a stock, I put all my college savings into it and watched it go to $0. I originally planned to go into the technology field but losing money really stuck with me. A stupid mistake in hindsight, but since that day, I vowed to spend my time learning about the markets, how stocks work, investor psychology, and so much more. My “why” is that I want to make sure friends, colleagues, and clients don’t run into the mistakes that I made. I know the pain of losing money and want to make sure others don’t have to do the same. With the amount of stress your money can bring, I want to help my clients avoid this completely.

The “why” should be pretty easy to determine. But, if an advisor cannot simply articulate something like this, you are probably not in good hands.

money stress

Source: American Psychological Association

Next, compensation. Your goals and the advisor’s goals should be aligned. I’m going to emphasize my next statement.

NO ADVISOR WORKS FOR FREE

I cannot stress this enough. If you’re getting “free advice” you’re being ignorant. You need to have a firm understanding of how your advisor is being paid. It’s either one of two things:

  1. A commission
  2. An annual fee or retainer

Most firms charge an annual fee on assets you bring to them. The keywords you are looking for is fee-only. Sometimes this cannot be avoided. For instance, if you need insurance for business or estate planning purposes, you might have to work with an advisor who is paid off the commission. There is absolutely nothing wrong with a commission but make sure its reasonable and disclosed upfront. If they cannot disclose their compensation to you, there is probably some hidden cost. You really need to make sure everything is disclosed upfront.

A few ways advisors are compensated:

  • When buying insurance, the advisor makes a commission
  • When buying an annuity, the advisor makes a commission
  • When buying a mutual fund, there could be an upfront “load” (aka commission)

You also need to look into the expenses of whatever investments are recommended to you. Sometimes the advisor does not get paid upfront but is instead compensated from a portion of your profits. These fees might be buried into the expense ratio of a mutual fund for example. I plan to dive into another post in more detail about these expenses but we will keep it high level for now.

Buffett Quotes - Risk.jpg

Let’s just keep this very simple, if you ask your advisor to disclose their compensation structure and how they are paid, and it sounds half-assed, move on. There are thousands of other advisors to work with.


Background – This should be common sense but you always want to make sure you have someone working with you who didn’t “stay at a Holiday Inn Express last night!” A proper education is crucial in any line of work to make sure the person sitting across the table has a solid college degree, with a few certifications or designations.

My personal opinion, an MBA is not essential for a financial advisor but instead, various certifications and designations are key. The most common credential that indicates you are working with a quality financial planner is the CFP® designation (Certified Financial Planner). You can simply go to http://www.letsmakeaplan.org/ and search for an advisor in your area. This designation is a  “promise to do right by my clients” indicator. Financial Planners with this designation normally hold themselves to a higher ethical standard which provides investors a bit of comfort. There is also a vigorous educational requirement to receive a CFP® designation so this is a good place to start.

I would also include with the background, referrals. The best way to understand how a financial advisor is going to work, their process, and track record, is to communicate with that advisors existing client base. Don’t be afraid to ask for referrals and get to know people already with that advisor. This will normally bring to light how the advisors operate their practice and also some details on their planning and investment management process.


The last question to ask is about the advisor’s investment process. To be clear, being a financial advisor DOES NOT indicate they are competent to manage your money! If you have read any of my other posts, especially 72 Hours, you will understand how our brain derails our investment process. So are advisors immune to their Limbic brain hijacking their investments process? Absolutely not.

Just as our emotions follow the wave above, an advisor runs into the same problems. When the market is falling, and clients are all in the “panic” stage, so is the advisor. It is crucial the advisor has some either rules-based approach or hands-off approach to investing to not let their emotions roll over into their client’s portfolios. If your advisor took you to cash in 2009, they have failed. If they took to long getting you back into the market, they have failed. An investment strategy needs to be emotionless.

This is the main reason I emphasize that most advisors need to outsource their investment management. From simply a time standpoint, there are not enough hours in the day to sit with clients, running financial plans, establishing income plans, while also having time to review economic data, stock earnings reports, client portfolio allocations, and do research on new investment opportunities. It can be outsourced to another individual in the firm, provided they are qualified and investment management is their sole responsibility.

Also, an advisor holding their CFP® does not mean you are working with an investment specialist, that is a financial planning designation, not an indicator of investment expertise. I would look to see if any CFA® Charterholders (Charted Financial Analyst) are present in the firm or involved in the investment management process. This designation is the gold standard for investment management education and a strong indicator of someone capable of managing your money.

Another fun question you can ask an advisor is how they manage their own money. An interesting report from The Financial Times a few years back showed that nearly 7500 mutual fund managers had absolutely no money invested in the products they manage. I would consider it important that the advisor “eats their own cooking” especially when they are advocating you should eat it.


So think back about why you are hiring an advisor in the first place. If your reason to work with an advisor is for performance reasons, you might as well stop right where you are. A financial advisor CANNOT guarantee better performance and honestly should never market that they can improve your performance. Investments should aim to keep pace with general markets and match a level of risk you are comfortable with. Make sure your investment process can be held throughout good and bad markets. Simplicity is key as long as it can be maintained. It should not be the goal of any financial advisor to simply beat the S&P 500 every year.

When hiring a financial advisor, make sure you are doing it for the right reasons. If you are unsure how to get started investing, tend to get emotional with your investments, or simply need someone to guide you along to reach various goals, then hiring a financial advisor is a perfect option. Just make sure you spend your time wisely to ensure its the right financial advisor.

  • Ask the advisor about their compensation
  • Ask about their background and education
  • Ask about their investment process
  • Ask “why” they are a financial advisor

You should never hire a financial advisor for improved investment performance

You should hire a financial advisor to help keep your emotional brain in check

You should hire a financial advisor if you need help planning retirement

You should hire a financial advisor for help with college planning

You should hire a financial advisor if you need help starting to save for the future

Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Information Overload

Einstein - Earth is Flat

This is kind of scary but it’s accurate.

Every 60 seconds, the following information happens:

To recap: every 60 seconds…

  • 65,000 photos get uploaded into Instagram
  • 350,000 tweets are sent
  • 3,800,000 Google searches are run
  • 156,000,000 e-mails are sent

With all this information going on at one time:

How are you supposed to focus on investing for the long term when the fire hose of media content is constantly blasting you in the face?

Are you sure what you just read on (name any website) is accurate and something you should act on?

How can you be sure what (name any news anchor) said on (name any TV channel) is something relevant to you?

Is there a better way you could be spending your time to further your progression towards (enter any goal or ambition)?

These are honest questions to ask yourself. Are you able to spare enough time in any given week to learn about your investments, 401k plans, insurance, student loans, buying a car, buying a home, or any other personal finance topics?

Nelson Mandela - Choices Reflect Hope

Today, it’s almost impossible to find the time when you are overloaded with hours of YouTube videos to watch, millions of Facebook and Instagram posts to read, dozens of new Netflix shows, and years of useless information to search on Google. The other downside is, with information overload you tend to want to make quick decisions when concerning news smacks you right in the face.

The best thing that technology has done for the world is provide us almost instant access to information. However, the worst that technology has done for the world is provide us almost instant access to information.

In Scott Galloway’s book, The Four, he talks about the focus of major tech players in today’s economy and how they impact our lives:

  • Google targets your brain; your thirst for information
  • Facebook targets your heart; your need for empathy and meaningful relationships
  • Amazon targets your gut; your hunter-gatherer instincts
  • Apple targets your desire; your urge for luxury and status

Professor Galloway explains in the book how each of these tech titans has breached into our daily lives and created almost an addiction to their products. We then spend countless hours throughout these various media properties and are overwhelmed with content. As “The Four” try to control our attention, so does every other media property on the planet.

The reason I bring up information overload is the fact that most people begin to question their investment plans, stall any progress towards their life goals, and increase their stress levels based upon news. Our brain tries to process what is going on but is inundated with too much content. Don’t worry, you cant escape it. Change the channel and there lies another info-graphic of how terrible the world is.

Here’s an example:

premarket wednesday

Source: April 4th, 2018 – money.cnn.com post

This was the story that everyone woke up to on Wednesday, April 4th. The stock market was down about 600 points before the markets opened and people were literally losing their minds. Queue the media screaming “Trade War.” Before 8AM, I already had dozens of e-mails from concerned clients.

Now, fast forward to the market close that day and we see the following:

Capture2.PNG

Source: CNBC

If you slept through the entire day you would have had no idea the volatility even happened. But you have to remember that media properties rely heavily on advertising revenue. To get advertising revenue, you need to have a lot of eyes watching your content. To get a lot of eyes watching your content, you need to have loud, entertaining and sometimes scary content.

To further prove this, I have began to archive daily news headlines. I am tracking all of this under the “Noise” section in the menu at the top of my website. My goal is to help highlight how periods of market volatility are a lot of times related to news. How you react and make decisions during these time periods will really dictate how well you stick to the plans you set to reach your goals. After a few months, when the volatility has subsided, most people will totally have forgotten any of this actually happened. Here is a snapshot of this month:

Capture

Source: Random News Article Headlines from Multiple Media Sources

I would bet if you set a calendar reminder for December 2018, you probably will have forgotten that tariffs were an actual concern during the year. Disagree? Well, can you remember the last time we saw severe market volatility based on the US debt being downgraded? The answer….2011.

You goal should be to remove the stress from your investments and simply take a breather from the media every once in a while. You should instead spend your time learning about areas of your future that are more relevant than today’s daily news. What can you do today to further learn about your 401k, buying/selling a home, or how to get started investing. When it comes to investing in the stock market, you need to focus on the content that actually matters. Most news outlets just summarize all analyst opinions on the market and aggregate them. I would emphasize you focus on how business leaders (ie: CEO’s, CFO’s, COO’s) are describing their own outlook for their business before agreeing with the news. Various economic leaders can also be a good place to get information but again, do it sparingly. Most companies report their earnings quarterly and a CEO normally writes a shareholder letter annually. There is a good reason they don’t give you this information daily…its just not important over short periods of time.

I would also suggest avoiding daily monitoring of your investments. Looking at your accounts daily is basically like checking your Zillow Zestimate on your home everyday. You know it will change over time but the minute by minute monitoring is ridiculous. The same thing happens with financial news outlets show a “tick by tick” play of a stock. The longer you can go without monitoring your investments, the smoother the ride becomes.

S00330_MediaFastHappiness

Taking time to focus on other aspects of your life will keep your stress levels contained and avoid derailing your future self. You have enough media fighting over your attention, so spend your time wisely!

Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Investing 101 – Start Early

Stay Focused

Today, we start with something simple; how to get younger investors focusing on the right steps for their future. Here, we will start with easy ways to get started, benefits of investing, and how to allocate your time and efforts.

I recently had lunch with a young client of mine to discuss investing. During the meeting, he said something to the effect of “make me rich Jack!”. To which I replied, “my job isn’t to make you rich but instead keep you rich, focus on the things that can make you money and I will help you not lose it all”.

With younger investors today, I find the focus of their investment strategy “get rich quick schemes”. If I asked a millennial or Gen Z to explain different ways to make money, I’m probably going to hear something about cryptocurrencies, flipping houses, Twitch streaming, trading with Robinhood or making YouTube videos. Now, some of these are new technologies and people are making a fortune investing their time into them but the reality is you need to take appropriate steps to plan for your future…in the event, your YouTube channel goes bust.

Investing is a marathon, not a sprint.

For most, the journey to save starts late. In high school, we rarely understand what investing is, then we go off to college and spend whatever we had saved. We graduate, buy a home, a car, a boat, start traveling, get married and start a family. All of this is a perfect start to life but at a young age, investing even small amounts can really have a meaningful impact on your future. I’m not saying to make it a full job but have at least some time and effort into saving for the future.

The problem for most is by the time they can actually sit down and begin to focus on their investments, they are mid 40’s early 50’s and have ruined a lot of opportunity for compound interest to do its thing.

Compound Interest

Compound interest is simple. Think of it simply as “interest on top of interest”. If an investment pays you cash, you then reinvest that cash back into the investment and buy more. Next time it pays out cash you should have received a larger cash payment, which again you reinvest. You are now “compounding” on your original investment.

Now, why this is important is simple. The longer you have to let this machine compound over and over again, the more wealth you will accumulate.

To test compounding, simply take out a calculator and enter $5,000 x 1.1 and keep pressing the equals sign over and over again. It look’s something like this (rounded):

  • $5,000 x 1.1 = $5,500
  • $5,500 x 1.1 = $6,050
  • $6,050 x 1.1 = $6,655
  • $6,655 x 1.1 = $7,320
  • $7,320 x 1.1 = $8,053
  • $8,053 x 1.1 = $8,858
  • $8,858 x 1.1 = $9,744
  • $9,744 x 1.1 = $10,718

Every time you press equals, this is the same thing as compounding (1.1 = 10%). It doesn’t take long to see your original $5,000 is much larger only after a few years of compounding.

Image result for reinvest your dividends

This is your main benefit as a younger investor. The more times you can “press the equals sign” and compound your money, the better you will be in the future.

One downside to working with young investors is that they see it as a waste of time to invest money when they only have a few thousand dollars, but you have to start somewhere. I’m here to tell you, they are totally wrong.

As a financial planner, a lot of my conversations are helping people figure out how to fund certain hobbies or necessities in the future. If you could ask ANY retiree what they wish they would have known earlier, I guarantee the majority say “I started saving earlier.” Back to my original point, a huge issue with saving is that most investors start late. Take a look at what 10 years difference makes when you start with the same investment:

Image result for investing early

Source: Business Insider

In the 1950’s-1970’s it was common to work for an employer your entire career, then retire on a large pension as well as social security. But the times are changing. With social benefits (ie: Social Security and Medicare) needing a revamp and most pensions benefits being removed from employers, the goal to plan and save for your future rests on your shoulders. If you screw it up, you have nobody to blame but yourself.

The easiest way to protect your future is to start saving now and just let compounding do its thing. Obviously, if you buy terrible investments or get loaded up with high fee products, you can shoot yourself in the foot. But there are plenty of great options out there to help you eliminate a lot of those options.

Here are a few tips that I would advocate younger investors focus on when it comes to their investing:

1 – GET STARTED SOONER THAN LATER:

If you are able to open up an account with any online investment shop, DO IT. If you have a 401k, contribute to it. If you had a ton of cash sitting in the bank earning nothing, invest it. You don’t have to start with a ton but at least get something happening towards your eventual retirement.

Whether it’s investing in a robo-investing platform like Betterment, Acorns, or Wealthfront or a discounted online broker like Fidelity, Schwab, or TD Ameritrade, just get your money working for you. Working with a financial planner or CPA you can identify the right type of account from a tax perspective as well.

2 – DON’T BE STUPID WITH YOUR INVESTMENTS: 

Every time I hear kids tell me they trade on Robinhood or are making money flipping cryptocurrencies,  I shake my head. Investing is not meant to be an adrenaline rush but instead a long-term process. I have no problem with speculating with investments but please realize you are in-fact, speculating.

6-minute abs never actually got you a six-pack in 6 minutes, but it sure sold a hell of a lot of DVDs. Investors love the idea of making a ton of money quick and so they gravitate their investment strategies towards themes like this. If I tried to sell a workout program and said it will actually take months, maybe years, of shoving broccoli, grilled chicken, protein shakes and egg whites down your throat along with endless cardio and crunches, I would never get the program off the ground.

Fitness, like investing, is a lifestyle. You have to choose to stick with it for years for best results. It’s also not an overnight success, some investments take years to really begin to work out. However, if you can identify a strategy that works for you and deploy it at an early age, you will be wildly successful. And always remember that compounding works both ways. You can just as easily compound your losses as your gains so make sure your investment process is solid!

I will do another post in this series geared specifically towards investments but for now, let’s just leave it as you need TIME to be on your side.

3 – FOCUS ON HOW YOU GET PAID:

This is often overlooked but one of the most important sections.

Saving and investing is a luxury for individuals with the ability to do so. The only way to increase your saving is to make sure you are compensated enough to afford to do so. The question comes in as to what can you be doing to improve your overall pay.

Countless studies show increasing your investment returns are nowhere near as valuable as increasing your earnings and skill sets relevant to do your job. This is especially true at a young age.

Branson - Opportunity.jpg

If you like your company and co-workers, what can you be doing with your time to improve your value with your firm? Investing time into certifications, designations, or other work-related activities is much more important than trying to increase your annual investment returns. If you are not happy with your employment, the next step comes in shopping yourself around. It never hurts to put yourself on the market and see what other companies will pay you.

4 – FIND MONEY AND OPPORTUNITY IN THE THINGS YOU ENJOY:

There is a great quote that from famous investor Peter Lynch:

Invest in what you know.

This is always a great start for newer investors. Stop and look at things you spend your day interacting with and try to find an investing angle. Maybe it a product or service you use through work, a website you frequent, or a brand you adore. Investment opportunities are always present and its great to start with the things we know.

A stock at the end of the day is simply ownership in a company. As consumers, we spend our discretionary income on various products and services. Taking a step back to look at how we personally spend our money will open our eyes to many of these companies.

My point is, most businesses are operated as “for-profit entities”, meaning they are trying to make money doing whatever it is they are doing. If you can identify the company behind the curtains, you have taken a few steps towards identifying potential investment options. Think hard about where you should invest your money but I would bet there are a lot of wonderful investment options right under your nose.

Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

72 Hours

Oprah - Words into Wisdom

What is it that makes us upset, angry, or even mad when we see losses in our portfolios?

Why do investors seem to always fall short of long-term average returns?

Why do we constantly feel the need to change our investments?

The short answer…we are wired that way!

Most individuals are planning YEARS in advance, whether for retirement, their children’s futures, a charity, or possibly a retirement home. The financial goals that we strive to achieve are abundant and the list could go on forever. Now, the great part about planning early is that you have YEARS of compounded returns to help generate wealth and expedite the time it takes to reach these goals. However, the unfortunate part of long-term planning is that it brings YEARS of opportunities for us to screw it up.

The past few months, I have been diving into dozens of books trying to further understand behavioral finance, how investors make good and bad decisions, and how to more effectively manage my own investments and financial plans. With every book I read, I find myself coming back to the same answer, my brain. He is the protagonist and antagonist in every story I tell. Whether it is stress, impulse decisions, fear, or worry, our brain is responsible for how we act. By learning to understand what part of my brain is driving at different times has really helped me gather my own thoughts and better realign my decisions to match my goals. I hope to take a few moments to outline what I’ve learned and seen if it can help you as well.

Now, I’m no brain expert, but from what I have learned so far, we can basically chop the brain into three (3) section: Rational, Emotional, and Instinctual.

Image result for rational brain vs emotional brain

The instinctual part is pretty straightforward, it’s how every person will attempt to dodge being punched in the face. However, the emotional and rational parts are fighting 24/7 for control over your decisions. When we interact in different environments, our brain reviews analyzes and confirms decisions about the scenario almost instantly. The question we have to ask ourselves is which side of the brain made the decision. Is our decision to sell out of our investment portfolio a logical and well-reasoned decision? Or are we basing our decision off a story, news article, or talking head (ie: our emotions)?

The emotional brain processes information in about 2 milliseconds. The rational brain processes information in about 500 milliseconds. Thats 250x longer! Gary Oliver, Ph.D. – John Brown University

So the short answer is, we are all wired to make emotional, irrational decisions! This is true with our friends, families, co-workers, and especially our investments. With our emotional side working so much quicker than our rational side, we need a way to structure our decision-making process so we can allow our entire brain to fully process the decision. Emotions are the worst enemy of our investing, and the more we can control them the better. Don’t believe me? Believe DALBAR (a financial research firm).

DALBAR 2016

Source: Blackrock/DALBAR

My recommendation is pretty simple, sleep on it! If you can hold a decision to impulsively adjust your investments, you will drastically improve your investment returns over time. Taking a pause will allow your rational brain time to catch up and make sure you have logically thought through the decision. Taking a pause to gather incite from other individuals (ie: your financial advisor) is probably a stellar idea as well.

The average investor has only returned about 2% annually since 1997. Over that same time, stocks have averaged about 7.5% annually and even fixed income (aka. Bonds) have returned around 5%. One of the main reasons for this is poorly timed irrational decisions. Something hits a new high, we want to buy it. Something hits a new low, we want to sell it.

I would recommend holding on any impulse decisions for about 72 hours. You have spent your entire life saving and investing for some reason, so should a sporadic decision really alter your future?

If, after a few days, you still feel adamant about your decision, then at least you have taken enough time to completely talk it through. As a financial advisor, I spent the majority of my time walking clients through these impulses and trying to help them navigate and focus on the road ahead. It sounds bad, but we see the same mistakes made over and over again. If we mapped your emotional brain against the S&P 500 it would look something like this:

Cycle of Emotions

Source: Blackrock

The last point I would make it simple. Our emotions normally cause us to abandon our investment process but we need to be sure to not emotionally make decisions to begin an investment process. Our logic and reasoning should direct how we deploy our capital and how we save for our future.

Please ignore typo’s, I will be editing grammar as I go!
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