Have you ever thought about how much poor financial decisions are costing you? Financial mistakes are, of course, a part of life. What really hurts, however, is that we tend to make the same mistakes over and over. Professor Toby Moskowitz of Yale says most bad decisions result from “funny thinking” and “funny feeling.” It turns out humans aren’t wired to make good financial decisions.
The actual cost of bad money choices isn’t just measured in money but also in time. As you fall further behind in preparing for a secure financial future, time transitions from being an ally into an enemy.
You Need a Guide
Without an experienced and qualified guide, mistakes can pile up and divert you from your financial destination. Providing guidance is one of our most valuable roles in working with clients. We understand how confusing it can be to make money decisions. Over the years, we have helped hundreds of clients find the path to their ideal life, instilling confidence along the way.
Bias Affects Your Money Choices
There are literally hundreds of cognitive biases that can come into play in the process of making financial decisions. Overconfidence is at the top of the list. Investors rarely understand the role of luck. In a coin toss, someone who tosses four heads in a row becomes overconfident that they may have skill, failing to recognize the luck involved. They think they may have an 80% chance of tossing heads again, while the actual odds are obviously unchanged at 50%.
While overconfidence reigns supreme at the top of the cognitive bias list, misunderstanding your personal investment history versus the market is a close second. For example, if you personally had a bad investing experience in a particular mutual fund 20 years ago, does that mean all mutual funds stink? Of course not, but many individual investors conflate their personal experience and the broad market as being one.
Focus on Your Destination
Everyone is on a journey. Sometimes the journey takes you to unexpected places along the way. In our role as a guide, we help clients stay focused on their desired destination. Ultimately, properly formed long-term goals should outweigh the emotional and behavioral issues that can easily divert you away from your path.
Poor financial choices usually have an emotional core. Investing behavior is invisible but incredibly important. Without guidance it is nearly impossible to avoid letting these behaviors overwhelm your decisions. The real cost of bad money choices is both financial and emotional. Ready for a real conversation?