Mind your investing behaviour gaps for investing success
Understand your risk. Have a plan. Develop a routine to achieve your plan.
Boring works.
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:
Here are some big fat investing mistakes.
These are 6 big retirement mistakes you need to avoid.
On a more positive note, here are 10 ways I’m trying to master money management.
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.
Here is a review and some takeaways from that book.
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
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?
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
More great info as always, thanks!
I want to win because…I need all the help I can get 🙂
Good luck!
I really enjoy reading your financial blog. Keep up the excellent work!
Great to hear Stuart! All the best to you in 2019.
Useful information delivered simply. Keep up the good work. I would like to win this book because me too I started investing late. Yet, I see the fruits of my dedication and I keep learning and investing more.
Good luck!
Money turns out is more about psychology and behaviour than being able to do planning & math. A personal goal is to model good financial behaviour to our young adult son so he starts an independent life with solid financial principles.
Well said and role models are important Gin – thanks for your comment!
Excellent Gin. Need more of this in Canada. Sounds like you’ll be a good role model.
Just reserved the book at my library.
BartBandy, I am guilty of this too a little. Usually I’m good but every now and then get caught on it. However it’s a fairly minor issue as I’m in the decumulation stage (retirement) and it’s pretty well smaller amounts I’m just trying to rebalance our asset allocation recently at lower equity prices. Doesn’t make much difference in the whole picture.
Pretty well have the rest under control.
Lol Lloyd, I’m that other guy you describe. Even my honeydo lists don’t last.
My honeydo list is always growing! Good luck with that too!
No issue with that here. I’m asked and I do…quickly! LOL
I’ve got honeydo lists so old they’re written in hieroglyphics on stone tablets. Still not done, maybe tomorrow.
Well, for investing your approach obviously has served you well.
“To thine own self be true.”
I have much in common with several of the foibles listed but my worst one is procrastination. I’m terrible at putting stuff off. As an example, I’ve finally got an appointment this week to get our wills updated/re-written. It’s something I’ve had on my imaginary “to do list” for years. I wish I had that ‘get to it’ attitude rather than the ‘it’s close enough’ one I have.
Ya, I’ve actually heard from a few people this week about Wills. Very important to have in place.
I’d love to be entered for this book – it sounds really good. When I started investing, like many, I was product focused but had to learn that investing is all about developing a consistent process that you can adhere to and learning to keep your emotions in check. I’m mostly in indexing so that has helped solve most of the emotional aspects for me, but one big one for me is conquering the urge for market timing. At various points I’ve allowed cash balances to build hoping for a quick downturn entry point, only to see the market move forward.
I think it book was well-written and can apply to most people – beginner, good knowledge base, or experts that need reminders now and then.
I think having some cash on hand is always a very good thing. Worse case, when you’re ready to invest more, at least you can!
Thanks for being a fan.