Distraction from the media, uncertainty or volatility in the markets, or pressure to buy and sell from friends, colleagues, financial “gurus” and other less than reliable sources for investment advice can directly challenge an investor’s ability to make consistent, rational and logical investment decisions. The barrage of information coupled with some inherent behavioral biases can make long term investing a challenge for most people.
Behavioral Finance has been an academic area of study since the early 2000s when Daniel Kahneman, a psychology professor at Princeton University published research that demonstrated “repeated patterns of irrationality, inconsistency, and incompetence in the ways human beings arrive at decisions and choices when faced with uncertainty.” Dr. Kahneman’s findings won him the Nobel Prize in economics in 2002 and the research strongly suggests that investors will often make decisions based on their emotions rather than on logic and historical data, even if it is right in front of them.
In a perfect world, planning for retirement should be exciting (I can’t wait to retire early!), easy (automatic savings/contributions) and not stressful (I have so much money to save!)
In reality, thinking about retirement can make people feel very anxious. How much should I be saving? Will I have enough to live? Will I run out of money? Planning for the future can be very overwhelming and it can be difficult to picture how saving into an investment portfolio can actually provide an income for you when you are no longer working.
Many times, people don’t realize the importance of starting to save early on. The earlier you begin to save money for retirement, the more successful you will be. You will have saved more dollars, and you are giving it a longer time to grow and earn interest.
As we get older, the idea of no longer earning an income and receiving a paycheck is hard to comprehend. We’ve seen a lot of our clients fearful of making a mistake as they near retirement and they become very fearful of market declines. As you approach retirement, it is so important to discuss any concerns that arise with your trusted advisor.
As financial planners, we hope our clients can achieve a peaceful transition into retirement. Here are a few suggestions:
Your time has finally come. You spent your years since high school scraping by on ramen noodles and pulling all-nighters so that you could score that great job, right? Now you have paid your dues for a few years and the time has come for you to get a raise or a bonus. This is certainly a cause for celebration!
Rewarding your hard work with some new clothes, a night out on the town or possibly something bigger like a new car is okay, but don’t get too carried away. It is important, to maintain a sharp perspective on your cash flow and your goals when your income begins to increase.
THE ESSENTIAL ELEMENTS FOR SUCCESSFUL FAMILY WEALTH TRANSFERS
It is inevitable--every day we get a little bit older. The time to begin planning for the next generation is now. As successful heads of your family, you have worked very hard saving for your future, taking care of your family and creating a plan for retirement. It’s possible that with a few additional conversations, you can create a legacy that your children and grandchildren may continue to enjoy for generations to come.
The complexities of the family and the amount of wealth transferring to the next generation can help determine how much time and effort will be required in the planning stages to ensure a successful transfer. If you would like the transfer of your wealth to benefit the next generation, then you need to consider involving your family early. It is important for each generation to try to understand each other’s perspectives regarding the shifting of assets and the impact these assets may have on their future.
If we look at society and societal norms, a lot of weight is given to success when it comes to defining happiness.
If we see a person who is successful, it is often assumed that they are happy. On an existential level we should consider what it all means. In reality, we actually have no idea whether or not that person is either happy or successful; for a couple of reasons: First of all, we can only measure someone else’s success or happiness by what we know about them. Secondly, and more importantly, we can only measure someone else’s success or happiness by how we define success and happiness. There is really no way of knowing whether their measures are even similar to our own.