At the end of year, it’s a good time to look back and see how your actions (“behaviors”) affected your year. Children sit on Santa’s lap and think about whether they have been “naughty or nice” in deserving presents. And now these days an additional set of watchful eyes comes from the “Elf on a Shelf” during the holiday season.
As grown ups, you may not have an “Elf on a Shelf”, but we do need to realize that accountability and “good behavior” are the number one driving factors to optimal returns in your investment accounts. The picture below shows you the most common, but detrimental, behavioral biases that commonly affect investors. Have you ever made one of these mistakes? I don’t know anyone that hasn’t (whether they admit it or not).
One of the main problems with money and investing is the disconnect in timing. Unlike Christmas, where you can anticipate a present and waking up on Christmas morning so excited to see the tree, very few people will feel so much joy in purchasing an ETF or Mutual Fund because the trigger for gratification and expectations are not clear. It is rare that your senses are engaged when you buy one more share of the S&P 500 Index as compared to having a gingerbread latte and cinnamon roll with a friend from Starbucks.
Studies and analysis of actual returns of investors proves that going on autopilot (no control over deposits and withdrawals) fare significantly better in ALL market cycles. But in most cases, you likely have control over your investment decisions—whether you decide to use a financial advisor or invest on your own. Oftentimes we don’t have the luxury of signing up for “autopilot” and continue to have control in good markets and bad. In these cases, it’s important to partner with good advisors and associate with good role models.
Over here, we take the “Elf on the Shelf” role and stick to our disciplined model of investing in the financial markets and making changes only when the data-driven BCM Market Risk ModelTM signals recessions. Our behaviors don’t change with the noise and chaos in the news. We are investing for the long-term gratification and goals of savings, growth, and preservation of capital. When it seems hard to “purchase low and sell high”, just remember that counter to your emotions, discipline and staying power will help you achieve your goals and remain on Santa’s “Nice” list.