shredded retirement money

3 Economic Behaviors That Hurt

  • My money is going to stay in the market.  It is rising and I want to recover my losses.

This is called Confirmation Bias.

  • We all have tendencies to look for information that confirms our beliefs while ignoring the data which proves our belief’s untrue.

My money is not going into totally safe investments.  The market is gaining I better get in too.  

This is known as Short Term Memory Syndrome.

  • Never mind what happened  last quarter, last year or 3 years ago we favor what happened last week or last month. We have strong tendencies to focus on news reports that happened this week making it easy to ignore the long term perspective.

My losses are just paper loss everything will be fine eventually.

This is called Mental Accounting.

  • Has to do with the idea earned income is worth more than money made from investing.   Another example is the slot machine player who remembers their  winning sessions and forgets all their losing.  This is where the idea of “found money” or “mad money” comes from after all it’s not really my money.

Tim Barton, ChFC