Mind your investing behaviour gaps for investing success
Understand your risk. Have a plan. Develop a routine to achieve your plan.
When it comes to investing enemies, boring works because there are few bigger enemies when it comes to investing than our own behaviour.
I’ve written about investing behaviour, my own bad behaviour, a few times on this site:
As part of your saving and investing behaviours – test yourself on these 15 financial rules of thumb.
The Behavior Gap
A few years back, Carl Richards authored one of my favourite personal finance and investing books, The Behavior Gap.
In the spirit of helping you mind various investing behaviour gaps, this year and every year ahead, here is a list of great lessons and related sketches courtesy of that book and Carl Richard’s site – and an opportunity to win a copy of The Behavior Gap via my random draw below. Good luck!
All images below courtesy of The Behavior Gap, with permission from C. Richards.
10 Behavior Gap Lessons
- We don’t beat the market, the market beats us
Richards reminds us to have a plan and “focus on your own behavior, not the market’s behavior”.
Find investments to populate your plan. Develop a checklist of questions to ask before you make any major financial decisions – including how you feel about certain decisions. Take your time.
- The perfect investment
There is no such thing as best investment. The best investment depends on your personal factors – your goals, your personality, your tolerance for risk, your time horizon and much, much more.
- Ignore advice, make fun of forecasts
With very few exceptions, market and economic forecasts are really nothing more than guesses – some of them very wild! “You’re not Warren Buffett. You’re not even the next Warren Buffett. Fortunately, you don’t have to be.”
- Forget financial planning, it’s more like life planning
“Happiness is more about expectations and desire than it is about income.” Remember that your financial situation is unique because your goals are unique.
- Too much information
Easier said than done, but spend less time worrying about money. Awareness is not the same as anxiety.
- (Your) plans are worthless
Wisdom is absolutely a financial strategy – so find your focus. You only have so much time and energy. Use both wisely.
Feelings can be expensive. This means investing, like life itself, forces us to make decisions in the midst of uncertainty. We need to embrace ambiguity from time-to-time as difficult as it may seem. To overcome the stress, try asking the two questions:
- If I act on this new information and it turns out to be right, what impact will it have on my life?
- If I act on this new information and it turns out to be wrong, what impact will it have on my life?
- You’re responsible for your behaviour (but you can’t control the results)
Investing is not entertainment. Make sure you consider the bigger picture – the context of your behaviour.
- When we talk about money – gaps happen
Sometimes generation gaps or upbringing can cause people to have different perspectives. Be open to them.
- Investing is simple but not easy.
Track your spending – just do it! Make sure you put a price on your goals. Take taxes into account for your investment decisions. When making a purchase, consider what you’d earn if you invested the money instead. “Slow and steady capital is short-term boring. But it’s long-term exciting.”
Summary and giveaway
We’re all flawed, myself included. But with some awareness of our behaviours and some good rules to follow – we all have an opportunity for change.
Enter to win a copy of The Behavior Gap below and thanks for being a fan!
What behaviours do you struggle with? What behaviours have you overcome?