Understanding ‘Average’ Returns
The US stock market has delivered an average annual return of around 10% since 1926.[1] But short-term results may vary, and in any given period stock returns can be positive, negative, or flat. When setting expectations, it’s helpful to see the range of outcomes experienced by investors historically. For example, how often have the stock market’s annual returns actually aligned with its long-term average? > SEE MORE
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Waypoint Wealth Management
Our Brain And Our Behavior, Part Three
Do you ever do something based on a recent experience, even though you know it might not be the best choice? Or do you ever think to yourself “you know, I’m a better driver than most”? How about watching the market’s movements and subtly measuring your diversified portfolio’s recent returns against a very narrow comparison such as the general market? If you’re like most of us and answered yes to any of these, we’re going to explore how these behaviors can potentially take us off track when it comes to our finances.
This is the final article in our three-part series, where we’ve been exploring the most common ways that our brains can be wired to help us in life—but also can hurt us as investors. > SEE MORE
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Waypoint Wealth Management
Our Brain And Our Behavior, Part Two
Little did we know when we started this series last month that it would be announced the Nobel Prize in Economics would go to Richard Thaler. You may not have heard of him, but he is one of three behavioral economists who can claim credit to the award in the last fifteen years. If you remember being automatically enrolled in your company’s 401(k) program instead of signing up on your own, you can give thanks to Richard Thaler. He and many others are helping us to understand why we as humans do the things that we do so that we can better understand ourselves and hopefully improve our financial (and life) habits.
In this second of three articles (you can read the first one here), we’re exploring a few more of the most significant behavioral biases that Richard Thaler and others invested their careers to learn more about: hindsight, loss aversion, mental accounting and outcome bias.
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Waypoint Wealth Management
Our Brain And Our Behavior, Part One
If you have ever watched a youth soccer game, you’ve seen it. Basically, the players observe where everyone is headed (towards the ball), and follow suit. It doesn’t matter where the ball is located on the field or what position the child is in–they’re going after it with all their might! While it’s cute to watch, this cluster of uniformed chaos creates a hive of activity and works against them, making it difficult to move down the field.
In soccer, this behavior becomes less of an issue over time as the player learns the sport. In the world of personal finance, this type of behavior is referred to as herd mentality, a type of “behavioral bias”, and may not go away over time. And unfortunately, your own behavioral biases are often the greatest threat to your financial well-being.
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Waypoint Wealth Management
Can Budgeting Actually Be Rewarding?
Many people view budgeting as a never-ending exercise in self-denial, characterized primarily by the word “no”. But it doesn’t have to be that way.
Instead, think about budgeting as the connective tissue between where your money is going this week, this month or even this year and the life in retirement you’re working toward. When seen in that light, budgeting can be remade into an affirmative tool, an integral part of a fruitful and constructive financial rhythm aligned with your values and goals. And regardless of where you are financially, consider this: Staying within the reasonable guidelines you’ve set with your budget is like saying “yes” to a fulfilling retirement.
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