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
Are You Prepared For The Next Correction?
If you enjoy a good read, we’d recommend Warren Buffett’s annual Berkshire Hathaway shareholder letters. While financial reports are rarely much fun, Buffett’s way with words never ceases to impress. His most recent 2016 letter was no exception, including this powerful insight about market downturns:
“During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy.”
This actually is a good time to talk about scary markets, since we haven’t experienced a severe one in a while.
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