What could money biases be costing you? Everyone has different viewpoints when it comes to money. But a Morning Star study shows that 98% of respondents show one or more money biases. On today’s show, we’ll break down these biases and see how they could be costing you financially.
Present Bias
Everything is coming so fast at us these days with the internet and cellphones, sometimes we may lose sight of the long term. It can really impact you when it comes to savings.
Investing is a long-term plan and there won’t always be instant gratification. If you are too focused on the now, how well will you be prepared for the future?
Overconfidence
The last 12 years have been a bull market, which can lead to some overconfidence both in the market and in yourself. It’s been easy to be an investor in the last 12 years. It’s easy to be an investor when the market is doing well, not so much when it is going down.
Loss Aversion
Are you terrified of losing money in the market? This fear can make people extremely conservative when investing. Keeping your money safe is great, but how will you keep pace with inflation if all of your money is in savings? You have to have some risk to keep up with inflation.
Oftentimes these biases are emotional reactions to the market. That’s why having an accumulated plan is so important. Having your long-term perspective laid out with an advisor helps you to make more rational decisions throughout the retirement process.
CNBC Article: 98% of Americans have at least 1 money bias, research finds — and it’s costing them (cnbc.com)
Listen to the entire episode or skip ahead using the timestamps below.
[1:11] – January market closing
[1:39] – Morning Star study
[2:26] – Key Points of study
[2:50] – Present Bias
[4:48] – Overconfidence
[5:51] – Loss Aversion
[7:17] – Low levels of money bias
[10:10] – Avoiding biases with a plan
[11:00] – Build speed bumps
[14:00] – Setting rules
[15:22] – Most common biases
[17:39] – Value with an advisor
A Quotable Moment:
“It’s been easy to be an investor in the last 12 years. The markets are going up. It’s always easy to invest when the markets are going up.”
-Phil Putney
