We review books that deal with everything from financial independence topics to politics, and anything in between. We may sometimes stray into films and music if there is a “Findependence” angle.
In the 20-plus years I have been investing, I have yet to meet or work with anyone who enjoys losing money.
I’ve met people who have lost money (yours truly included) and I can’t say it gives anyone or myself great satisfaction. We spend all of our time trying to make investment decisions that will be successful.
Unfortunately and it’s nobody’s fault, we don’t spend enough time understanding what losses mean and how they can impact our future decision making beyond the tangible reduction in our RRSP or TFSA broker account.
In my previous post, I discussed a concept involving the Endownment Effect that Richard Thaler observed in his book, Misbehaving: The making of behaviorial economics. According to Mr. Thaler, the Endowment Effect feeds into a general discussion on how we behave when it comes to losing and making money. Conventional thinking suggest that because we don’t like losing money that we will tend to take less risk to minimize loss and conversely take more risk when we are making money.
Regular Hub readers may find this blog post familiar. That’s because it originally ran this time a year ago: in January 2015. Given that the year 2016 is now actually here, and last week’s market activity certainly had “crash-like” elements, it seemed appropriate to bring this one back to the top of the queue. Starting with my byline below, the review is as it appeared a year ago: In a couple of spots, I’ve added editor notes to clarify dates and timing.
By Jonathan Chevreau
.As a rule, I avoid reading too many financial books based either on Greed or Fear. Still, when you have a good chunk of your net worth invested in the stock market, it’s hard not to have a twinge of doubt when you encounter books like Thom Hartmann’s The Crash of 2016.
I paid no attention to this book when it was published late in 2013 but now it’s 2015, well, 2016 isn’t so far away now, is it? (editor’s note: that was the review’s original sentence; of course, it is now 2016).
Why am I writing about it now? I wasn’t responding to a belated PR campaign by the publisher (Hachette Book Group) but stumbled on it while searching for other books on Kindle. The Kindle sample on offer didn’t enlighten me much about the author’s thesis (that should have been a clue!) so I ordered it from the local library, not feeling any urgency to get my hands on it.
Indeed, the last time I read such a book was Harry Dent Jr’s The Great Crash Ahead and of course so far that prediction has yet to manifest. Continue Reading…
“… Psychologists tell us that in order to learn from experience, two ingredients are necessary, frequent practice and immediate feedback…”
Investing is intimidating and hard to us because we just don’t practice or engage in it enough.
This short sentence stopped in me my tracks as it captures so neatly and concisely my motivations for becoming an investment coach.
A lot of people are intimidated by investing. There are many elements about investing that strike fear into the hearts of people. The fear of math andall those formulas, ratios, and calculations. The fear of losing all your savings. The fear and trepidation of clicking that button on your computer screen to buy or sell a stock.
How to overcome investing fears
I found the best way to overcome the fears of investing and just about any skill or competency is to educate ourself and to frequently engage in the activity and behaviour to gain experience and confidence.
When we decide to become a nurse or a computer programmer or a financial analyst, we go to school to educate ourselves and practice the skills necessary to be proficient in that occupation. To determine how successful we are in acquiring a skill we take tests and exams that provide us with meaningful and timely feedback. We then will apply those skillsets in a job where we will repetitively practice those skills we’ve developed which ultimately make us even more experienced.
These are the usual steps when it comes to becoming proficient in a skill. We will commit the time and resources to do what’s needed often enough to learn to get it right. However when it comes to choosing a home, a mortgage or an RRSP, or stock or bond, most people don’t get much practice or opportunities to learn. And when it comes to saving for retirement, barring reincarnation, we will engage in that process or journey exactly once.
People don’t invest often enough
People have a hard time with investing because they simply just don’t do it enough. We don’t commit the time to learn and practice the skill. If we’re not engaged in the process, we will not receive meaningful feedback (which is ironic because technology gives us real-time feedback on the progress of our portfolios) and we will be less likely to improve our development. When we do engage in a program with a financial advisor, often our interaction takes place at the start and maybe if we’re lucky once a year, which to me is not enough when we are talking about something so important as your personal finances. That meaningful feedback loop that can keep us engaged is few and far between.
With the proliferation of passive investment strategies and automated portfolio management services, I fear that more people in the future will be even less engaged in the process of investing and as a result will not develop the financial literacy and self-awareness of cognitive biases that can cloud our decision making. Passive investing is a powerful and effective strategy but it can be more powerful and fulfilling when we are more engaged in the process.
A lack of practice leads to a lack of commitment that provides very little feedback. As a result there is a greater probability that we will not develop the skillset, literacy, or self-awareness to make successful investment decisions.
Investment coaches are different from financial advisors
This strikes at the heart of what I do as an investment coach and what makes investment coaching so fundamentally different than a traditional financial advisor. My job is to get people I work with to engage in the process of investing and I do it through hands on training, constant engagement, and finally providing my client with meaningful and timely feedback through coaching conversations.
When someone works with me, they are making a time and financial commitment to develop their skillset for making investment decisions and my role is to enthusiastically engage them through coaching conversations about a real-time investment issue and formal education and practice. By taking this approach to nurture these financial behaviours I have found that this can have a more profound effect in the development of a person’s financial literacy.
So for me that small little sentence tucked away in Mr. Thaler’s book crystallized my raison d’etre. Who would have thought?
Aman Raina, MBA is an Investment Coach and founder of Sage Investors, an independent practice specializing in investment coaching and portfolio analysis services. This blog was originally published on his web site and is reproduced here with permission.
Billly and Akaisha Kaderli, RetireEarlyLifestyle.com
By Billy and Akaisha Kaderli
Special to the Financial Independence Hub
All your ducks are in a row. You have saved and carefully invested for years, and the personal discipline is about to pay off.
So why is there apprehension in the bottom of your belly? Let’s be honest. There is risk involved, and the future no longer seems certain or familiar.
“What if I forgot about something?,” you think, and start going over every plan you have made.
No one likes to admit straight out that they are afraid of retirement. Why, that sounds silly! But changing your life from one of being focused on work duties, raising a family, paying bills, and receiving that dependable paycheck every week to one of the virtually unknown has its own set of stresses. You’re being dishonest if you say it’s not a big leap mentally, emotionally, or financially.
Sometimes you have to take a leap of faith
Lack of confidence often underlies questions disguised as logistics on how to retire. Sometimes, one must simply take the leap of faith, making a companion of the ever-present question “What if?”
If you have spent your whole life building security and providing that same security the best you could for your family, then stepping into the unknown world of retirement is like jumping off a cliff. Even if you’re as prepared as you think you are.
Sure, we can distract ourselves with dreams of endless golf, or margaritas on an exotic beach somewhere, but when it’s quiet, we find ourselves looking over our shoulders, wondering whether some forgotten component is lurking just out of sight.
“What if I run out of money?.” you whisper to yourself.
Perhaps your personal fear mongering nemesis is health care in retirement, your portfolio balance or even something as simple as boredom. There can be great comfort gained from all of one’s time being planned out months in advance.
To expect retirement to be free of hitches or snags is unreasonable. There are no guarantees in life. None of us knows what the future will bring, and this is true whether you’re working or retired.
In our experience, how to contend with the fear factor in all its guises is an important point worth addressing. Fear keeps us on the defensive, often preventing us from taking positive action or noticing opportunities and the support that surrounds us. Let it be said that if you are afraid, it is more difficult on all fronts to have a successful retirement.
“What if … ?”
The “What If” syndrome is all-pervasive. It attaches itself to every aspect of your life. However, living life through the eyes of fear only amplifies that uncertainty. If you wait for that perfect time to do something, you may discover that it never arrives. Looking back over your life, you might see all of the missed opportunities for great adventures and memory-making that you set aside in your pursuit of that ever-elusive feeling of security.
So what do you do? Fear never leaves us, but the fortifying of our confidence helps us to cope. Find ways to transfer your talents and abilities to your new life. If you must, make a list of your strongest traits. Enumerate your interests and the ways you can best satisfy them.
Check out the phone book, the local library, or your weekly event newspaper for groups to join, ongoing education classes being given, or chances to volunteer somewhere that lets you offer your expertise in something. Exercise. Stay connected to society. Try something new. Following these suggestions will bring strength to your new life, expand your mind, and build up your spirit. From here, you will gain much-needed self-assurance, making it easier to surmount any obstacles you may encounter in your retirement.
One of the most useful books I read in preparation for a recent talk I gave on longevity was The Longevity Revolution, published in 2008 by Robert N. Butler, M.D. Apart from being a Pulitzer Prize winner, Dr. Butler is also the founder of the International Longevity Centre.
The book is subtitled The Benefits and Challenges of Living a Long Life. Butler observes that in less than 100 years, human beings have made greater gains in life expectancy than it did in the preceding 50 centuries. From the Bronze Age to the end of the 19th century, life expectancy grew by only 29 years or so, from 20 to just under 50 years. But in the 20th century, Life Expectancy surged another 30 years to reach over 77.
The paradox of a downside to what should be good news
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By Aman Raina, Sage Investors
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