In my hometown of Baltimore, there’s an oft-heard saying that seems especially applicable when, like now, the seasons are changing: “If you don’t like the weather today, just wait until tomorrow.” For whatever meteorological reason, it’s not uncommon for an absolutely miserable Monday to turn into a gorgeous Tuesday. Temperatures have been known to swing as much as 20 degrees inside of an afternoon.
A scientific view of stock market history, unfortunately, shows us an even greater propensity for unpredictability and volatility.
Even the years that we refer to as the “good” ones, in retrospect, test our mettle. For example, between 1950 and 2014, a span of 65 years, the S&P 500 ended the year with a gain 51 times (or in almost 80% of them). Not bad. But in how many of those up years do you think investors would’ve found themselves in a “losing” position at some point in the year?
Every. Single. One.
Daniel Kahneman and Amos Tversky legitimized behavioral economics—the study of how people really behave around money, as opposed to how economists say a rational person ought to behave.
Then Richard Thaler and Cass Sunstein applied the lessons of behavioral economics to everyday life with their book Nudge. The duo nudged so successfully that in recent years, their prescriptions have been put to work in corporate retirement plans—and even public policy—on a global scale.
When I spoke to Thaler to discuss his newest book, Misbehaving, a series of stories documenting the rise of behavioral economics, he told me that he has a message for those who seek to employ his methods:
“Nudge, for good.”
And why does he say that?
Anthony Anderson is a funny dude. The Emmy-nominated actor has been making people laugh on television and in film for 20 years. But now he’s bringing his sense of humor to a surprisingly unfunny topic—the need for life insurance.
The big question I had for him was: Why? Why, with your career exploding and recent Emmy nomination (for lead actor in the show Black-ish), are you investing time and effort to be the spokesperson for Life Insurance Awareness Month?
“I know firsthand from friends and other family members who’ve never had a policy, who’ve never thought about having a policy. And then all of a sudden someone passes in their family and they don’t know what to do,” Anderson told me.
Fair enough. Many people aren’t even aware of the need for life insurance, and that lack of education is a big concern for Anderson, and a major driver of his dedication to public awareness. But as we continued our conversation, it shifted focus. What it seemed to begin revealing were some of the tragically comic, ridiculous reasons that many people choose not to buy life insurance. Here are the Top 5:
5) I’ve got more important things to insure.
“People insure their flat screen televisions, they insure their cars, they insure jewelry, but they don’t insure themselves,” says Anderson with a chuckle. He’s also evidently frustrated by this reality. “If it weren’t for themselves, they would have none of those things to insure.”
In a new CNBC series on which I’ll be a regular contributor, I offered some “Straight Talk” on Social Security retirement benefit strategies that, while simple, are all too often missed.
It should be no surprise, because Social Security is an incredibly complex animal. Did you know that each U.S. married household represents potentially thousands of different Social Security options? It’s likely that you’ll need to confer with a financial advisor specializing in Social Security distributions in order to determine how you can get your maximum benefit.
I’m a speaker, author, wealth advisor and director of personal finance for Buckingham and the BAM Alliance. Connect with me on Twitter, Google+, and click HERE to receive my weekly post via email.
Is recent stock market volatility bugging you?
Do you wince with every headline announcing Greece’s demise, China’s bubble(s), the Federal Reserve’s indecision or the Dow’s down day?
Do you sneak a peak at your portfolio’s performance more than quarterly (or perhaps even annually)?
Does market volatility tempt you to question your investment strategy, even if it’s well thought out and carefully implemented?
Does it weaken your resolve to resist the sky-is-falling siren song heard so frequently in the financial media, or the sales pitch du jour?
Having the right investment strategy is important—really important—and surely contributes to long-term success in building wealth. But no matter how superlative your strategy, it’s your willingness to stick with it that ultimately will help you meet your financial goals.
“You don’t really do this stuff—do you?” The question came from a major network anchor after the camera stopped rolling. The topic was budgeting.
He certainly isn’t obtuse, and he wasn’t being patronizing or condescending. It was a legitimate question that accurately reflects the underlying perception held by most people in any demographic–that budgeting is for those just scraping by and young people just getting started. A tedious chore reserved for those lacking the means to do otherwise. A humble state from which most of us hope to graduate.
But this is a misconception. In truth, the budgeting process can help people at every stage of life and every income level articulate and align their deeply held values with their financial priorities, which is the first step on the path to integrating money and life. However, there is more to be gained from the discipline of budgeting (at least in terms of raw dollars) for those of means. Better said, there is less to be lost by families who earn especially high incomes.
Most people avoid budgeting because they consider it an exercise in repressive tedium. But it doesn’t have to be. By applying the science of motivation, economic evidence and the art of creativity, the apparent boredom of budgeting and saving can be remade into part a life-giving financial rhythm.
In his book, Drive, Daniel Pink teaches us that most institutions still use outdated science to motivate. Known as the “carrot-and-stick” approach, Pink demonstrates that the archaic addiction many organizations have to extrinsic motivation is far less effective than intrinsic motivation, which comes from within. The most successful resolutions are those autonomously motivated. In short, the word could is more effective than the overused should.
So, please hear this: Only budget if you want to, on your terms. It’s up to you.
Simple is hot, even fashionable. But in many cases, it’s for all the wrong reasons. Simple is easier to pitch, explain and sell, and therefore also easier to receive, understand and buy. But when simple devolves into simplistic, becoming a one-dimensional end instead of a user-friendly means, it’s no longer an advantage and may actually be doing damage. Not everything can be turned into a tagline, a rule of thumb or a short cut.
Therefore, when my colleague and New York Times contributor Carl Richards first asked me a couple years ago to think about what a financial plan might look like if it was constrained to a single page, I was skeptical. After all, I’d dedicated my life and work to helping people, primarily in their dealings with money, wholly through the written and spoken word. The fullness of that education seemed impossible to responsibly confine to a single page. Then I read Carl’s new book, The One-Page Financial Plan.
At 208 pages, it may be a tad shorter than most personal finance books, but it’s obviously longer than one page. There is, however, a single page in it that I believe will help you understand why the book was written and how it could benefit you. On page 11, toward the end of the book’s introduction, Richards shares with us his family’s first attempt at an actual one-page financial plan.