If you are aiming to be a successful investor in the future, it’s critical to overcome certain biases and plan your retirement accordingly to claim those higher investment returns. What are those investor biases? How will they affect your disposition when it comes to financial freedom?
This week in the No Payne, No Gain podcast, Bob and I will talk about the four investor biases that could lead you to financial losses and the different levels of desire to retire and how to plan accordingly. As always, we will have this week’s financial propaganda.
For our spotlight segment today, we have our financial advisor at Payne Capital Management, Aaron Dessen. He’s going to break a couple’s real retirement plan down for you.
Another great show ahead of us, so tune in to the No Payne, No Gain podcast now!
How to Overcome Investor Biases
Investors are not always rational. Most have their limitations when it comes to self-control, which often leads them to make poor financial decisions. What are the top four biases that investors should avoid to secure their retirement?
[01:53] – What is Confirmation bias and why it is a bad thing for investors.
[03:35] – The Loss aversion bias and why becoming over sensitive to the risk of loss and then reluctant to take action will lead to disaster.
[04:33] – Bob uncovers the trick to overcoming these two biases.
[05:56] – The Disposition effect bias: holding on to investments that are past their value and refusing to invest in something you should invest in. How do you overcome this?
[06:47] – Hindsight bias: The most important bias that every investor should avoid.
Different Levels of Desire to Retire
Achieving early retirement is an extraordinary feat. Desiring to retire is one thing, but planning it accordingly is a whole different game plan. Which level of desire are you in and what should you do about it?
[13:31] – What’s a good way to form retirement in your mind?
[14:35] – Having an income plan in place is critical because you may have a lot of assets but pulling from your assets is a whole different story.
[15:18] – “I guess I could retire but they pay me pretty well, and I don’t hate it so I might as well keep working.”
[16:08] – “I like to retire in a few years, but I have no idea when I really can, we’ll find out.”
[17:00] – Have investments but understand the risk of those investments. You really do need to know what you own and get to know why you own it.
[18:07] – “I want to retire tomorrow. If I don’t quit this job right now, they might have to put me into an asylum.”
Financial Propaganda of the Week
Occasionally, Bob and I scour the daily financial news and call it the best advice, worst advice the financial media has recently been broadcasting so you can make the best decisions about your planning and investing. Here are our top choices:
[22:54] – Bob shares the impact of Coronavirus and how it’s going to impact today’s market.
[23:17] – Odds are it’s probably something temporary and trades are still going to continue regardless. It’s not a smart move to just move your money to cash.
[24:12] – We’re in a bull market where the economy is strong, the unemployment is low, and profits are on the rise. This is not the time to try to find the best spot to get in the market. If you get a correction or sell-off in the market, take advantage of it.
[25:01] – If you’re a long-term investor, take advantage of the dips and don’t be looking at it as a reason to panic because it’s probably not a good idea.
[25:44] – The bond market is getting a little bit scary. Last week, as the market was going up, investors poured $23.6 billion into fixed income mutual funds and exchange-traded funds.
[26:17] – In a bond fund, your money doesn’t come due. The idea of owning bonds is for safety, but it could be a massive problem in the future.
This week, Dan Irving answers our listeners’ questions about their finances.
[33:39] – Question #1: I’m 60 years old. And I’ve just been given two options at work. I can keep working and retire in five to six years with a pension. Or I can retire now and take a severance package and a pension buyout. How do I weigh my options?
[36:40] – Question #2: We’re currently building our dream home and we’ll be moving in within the next 12 to 18 months. Should we sell our current house after we move out and invest the cash or keep it as a rental property for retirement income?
Our special guest for this week’s Spotlight Segment is Aaron Dessen, our colleague and financial advisor at Payne Capital Management. He gives an overview of a couple’s case who had gotten into mutual funds and how he turned the situation around and lead to the path of financial freedom.
[44:16] – Afraid to take risks, the couple thought that investing everything into mutual funds years ago was a brilliant idea. Now, they didn’t really have any contact with anyone since and really weren’t sure how and where their money was invested.
[45:32] – It’s been a great decade for the S&P but it’s so important to not have all your eggs in one basket. Have a diversified portfolio to protect yourselves against the downside.
[45:52] – Ryan states the great irony of investing is that you don’t know how much risk you have in your portfolio when you have the most risk.
[47:17] – Mutual funds are higher costs because on average, they’re tax-inefficient.
“You have to embrace volatility because, without volatility, there’s no opportunity.”
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Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Payne Capital Management, LLC), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Payne Capital Management, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Payne Capital Management, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Payne Capital Management, LLC’s current written disclosure statement discussing our advisory services and fees is available for review upon request.