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Use Human Nature to Help Your Finances, Not Hinder Them

11/21/2014

As a species, humans are woefully ill-equipped to be successful with their finances.

Thousand of years of evolution on the savannah have given us a host of instincts that kept us alive. Those same instincts have a tendency to trip us up when it comes to financial decisions. The list is long and illustrious and includes stunners such as:

the “fight or flight” instinct, which leads us to often sell our investments at just the wrong time.
loss aversion that makes us hold our losers, hoping they will bounce back.
herding behavior, which has us buying and doing what everyone else is buying or doing because, hey, that’s what the cool kids are doing.

When you couple this with the average person’s stunning lack of knowledge about basic statistics and probability, it often leads to a financial train wreck.

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Go Ahead, Buy That Stock

11/15/2014

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I participate in a variety of forums with other advisors. Occasionally there is a question, “Should I buy the stock of X company?” The usual response from advisors is to forgo individual stock investments and concentrate on building a low cost, diversified portfolio of mutual funds or ETFs. It’s good advice. It’s also advice I give my clients.

But I have an additional thought: You should buy that stock.

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Use Human Nature to Help Your Finances, Not Hinder Them

Go Ahead, Buy That Stock

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