Let's continue our alphabetic tour of common behavioral biases that distract otherwise rational investors from making the best choices about their wealth. Today, we'll tackle: fear, framing, greed and herd mentality.
Publishers Clearinghouse has long been famous for its big checks and big winnings, but it has recently come to our attention that scammers have been using the PCH name and logo to commit fraud.
Although PCH's sweepstakes are legitimate, you still need to be very cautious if you receive a prize notification from PCH or any other company claiming you are a big winner. We are advising all of our clients to shred and ignore notifications from PCH and to be wary of all prize notifications, especially ones that ask for money.
Welcome back to our "ABCs of Behavioral Biases." This article introduces you to four self-inflicted biases that knock a number of investors off-course: anchoring, blind spot, confirmation and familiarity bias.
What is it? Anchoring bias occurs when you fix on or "anchor" your decisions to a reference point, or default when required to estimate an unknown value.
When is it helpful? An anchor point can be helpful when it is relevant and contributes to good decision-making. For example, if you've set a 10 pm curfew for your son or daughter and it's now 9:55 pm, your offspring would be wise to panic a bit, and step up the homeward pace.
One of our responsibilities as an investment advisor is to help you put market news in its proper perspective. If you're reading or listening to the popular press these past few days, you are probably seeing or hearing storm and fury having to do with government shutdowns, market corrections and the possibility that the Fed may raise interest rates. As the popular media scrambles to explain the unexplainable - current market volatility and how long it's going to last - we thought we'd share a headline of our own:
"The stock market is a giant distraction to the business of investing."
Said by Vanguard founder John Bogle in his 2007 classic, "The Little Book of Common Sense Investing."
Robin Young of Northstar Financial Planning on getting to the heart of what is most important to people
This article was written by Lois Shea of the New Hampshire Charitable Foundation and originally featured on nhcf.org.
Research shows that people want their professional advisors to ask them about charitable giving. And sooner rather than later. The “U.S. Trust Study of the Philanthropic Conversation,” conducted in partnership with The Philanthropic Initiative, showed that virtually all high-net-worth people think this discussion should happen within the first several meetings with an advisor. A third think the topic of charitable giving should be raised in the very first meeting. Yet fewer than half feel their advisors are good at discussing personal or charitable goals with them.
Wondering how to start a conversation about charitable giving with your clients? Or looking to refresh it?
In the coming months, we will be sharing a series of articles about behavioral biases and the impact on investment and planning decisions. As financial advisors, it is our role not only to help our clients successfully plan for and invest in their future wealth, but also to act as a coach, helping clients to better understand wise investing strategies and the long-term, global approach that we take in our wealth management process. Our goal is to guide clients to make decisions that serve their best interest. We encourage you to provide us with feedback as each new article is released and we look forward to an active dialogue on the subjects. Enjoy!
The Tax Cuts and Jobs Act was just released by the House Ways and Means Committee and it contains a large number of provisions that would affect individual taxpayers.
Here are some of the key provisions:
Under the bill, individuals would be subject to four tax rates, instead of the current seven: 12%, 25%, 35%, and 39.6%, effective for tax years after 2017. The rates under the bill would be as follows:
On the off chance you didn't hear, maybe you have been distracted by natural disasters Harvey, Irma, or Mexico's 8.1 earthquake and associated tsunamis, Equifax was involved in a man-made disaster affecting 143 million Americans. Between mid-May and July, hackers accessed people's names, Social Security numbers, birth dates, addresses and, in some instances, driver's license numbers. They also stole credit card numbers from 209,000 of us.
While this, of course, is very disconcerting, we have outlined the necessary steps to first, find out if you were one of the victims, and second, take the necessary steps to protect your credit as best you can.
As back-to-school signs start popping up in every grocery store, pharmacy and department store it is hard to avoid the reality that summer is coming to an end. For many adults, there is relief that children are back in school and there will be a little more time to yourself as the temperatures start to lower. For kids, the summer is a long and glorious adventure and most are sad to see the freedom of their days return to the structure of school and sports and indoor activities.
After childhood, there is little opportunity to have that kind of time to really spread your wings without obligations to family, work, finances, etc. Some young adults seize the chance to take a gap year between high school and college, or college and grad school so that they can explore opportunities and have experiences that might begin to fall out of their reach once they begin careers, start families, etc.
The Unexpected Luxury of Time
As your retirement date draws nearer, there can be a great deal of excitement and apprehension. You have worked for thirty or forty years—and changing your routine, priorities, and obligations is something to look forward to. On the other hand, uncertainty can begin creeping in when you start to think about all that time. What if the new and less structured life you are about to embark upon isn't enough to sustain you?
As you age, the questions you may have asked yourself in your younger years become more profound in later stages. Questions like-- "Am I living the life I want to live? Who is most important to me? What is most important to me?" have more resonance as you age. It is likely because you are more cognizant of your own mortality and you want to make the most of the time that you have.
As financial advisors, we have seen what happens when people have not planned for older age and the challenges that come with it.
We often meet the children or spouse of someone who has significant medical issues, like Alzheimer's disease, parkinson's, Dementia, or other chronic illnesses--that have led them to substantial diminished capacity-- physically, mentally or both. They come to us at their wit's end, trying to scramble to put together a plan, when, in many cases, only very little can be done to ease the burden.
When we meet with these families and try to assist them, it is a constant reminder of why, even when we begin a relationship with people who are still in their careers, we discuss the plans for aging, and provide a strategy--should people not age as gracefully as we all would hope to.
More Articles ...
- Avoiding Financial Scams and Identity Theft Slams
- Thinking about Giving?
- Navigating a Mid-Life Course Correction
- New Year, New Beginnings