Afford Anything

Tag: behavioral finance

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#426: Key Takeaways: Best Lessons from the Last Year, with Paula Pant

Behavioral researcher, Vanessa Van Edwards, talks to us about the critical importance of charisma – and how to use the perfect blend of warmth and competence to be charismatic.

Dr. Michael Slepian walks us through what secrets mean, what they cost, and how we think about them.

We dive into the world of long distance real estate investing, and talk about two of the major components of investing – Cash and mindsets – to help you determine if long distance real estate investing is right for you.

International best selling author, Julie Winkle Giulioni, reviews eight dimensions of career development and how to navigate them.

Chris Hutchins, entrepreneur and life hacker extraordinaire, spills his best secrets on optimizing spend to travel more cheaply.

Kiersten and Julien Sanders join us to discuss money topics for couples, and their framework for being financially independent in 15 years.

Stanford professor Jeremy Utley breaks down the art of creativity and producing new ideas – and shares actionable tips on how we can be more creative and have better ideas.

Dr. Daniel Crosby discusses how we are not wired to be good investors, and how to overcome our evolutionary wiring.

Enjoy this compilation of our favorite episodes to air in the second half of 2022.

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#420: What We Learned in 2022, with Paula Pant

Dr. Ellen Vora, M.D., shared insight into the roots of procrastination, offering evidence-based tips for how to overcome our own inner demons of anxiety, fear and laziness.

Psychology professor Bill von Hippel described why too much happiness is just as detrimental to our long-term health and wellbeing as too little happiness.

Wall St. Journal columnist Spencer Jakab observed the perfect storm of conditions that gave rise to meme stonks and other oddities of our era.

Former financial planner Joe Saul-Sehy argued for “strategic under-diversification” and explained the Sharpe Ratio.

Data scientist Nick Maggiulli explains the save-invest continuum.

And financial planner Bill Bengen, the creator of the 4 percent retirement withdrawal rule, talks about what most people misunderstand about the safe withdrawal rate.

These are just some of the highlights from the Afford Anything podcast in this 2022 year-in-review episode.

Enjoy!

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#413: Why We’re Paying Attention to the Wrong Things, with Dr. Daniel Crosby

If an idea dominates the headlines, we notice it.

But maybe we shouldn’t.

Today’s guest, psychologist and behavioral finance expert Dr. Daniel Crosby, says there’s a difference between a prediction that gets repeated, and one that’s likely to unfold. 

What’s salient isn’t accurate, he says. And vice versa. 

He also talks about how money problems have morphed over time. He chats about how our evolutionary wiring is at odds with our goals. And he even discusses how we’re wired to be ‘lazy’ – and how to work with that tendency instead of fighting an uphill battle against it.

Dr. Crosby researches the intersection of mind and markets. His latest work, The Behavioral Investor, is an in-depth look at how sociology, psychology and neurology impact our investment choices. 

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#408: Build YOUR 15 Year Career, with Kiersten and Julien Saunders

When Kiersten and Julian Saunders began dating in 2012, they fell in love quickly, and their relationship felt strong – until they started talking about money.

They broke up as a result of their first money conversation.

Luckily, they got back together, figured out how to have tough conversations, and paid off $200,000 in debt over the next five years.

Then they started thinking about how to hack their careers. They came up with a plan for a 15-year career.

Today, they join us on the podcast to talk about the 15-year career framework and how to approach your career – and your finances – in 5 year stints.

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#388: “Feeling Anxious About Your Investments?”, with Scott Nations

Recessions are terrifying.

Market crashes often bring out the worst in people’s anxieties and fears.

This fear triggers us to act even more irrationally than usual – which can lead to making expensive mistakes in our investment portfolios.

In today’s episode, Scott Nations, who spent his career studying market volatility, describes some of the most common cognitive biases and irrational behaviors that investors make. He shares tips on how to master the mental game of investing, especially in turbulent times.

Here are a few irrational biases that destroy wealth:

#1: The disposition effect – Humans have a tendency to sell their winners and hold their losers.

Why? We get a dopamine hit when we sell a winning asset and lock in our gains. Meanwhile, sunk cost fallacy makes us want to hang onto the loser ‘until it comes back.’

How can we avoid falling prey to this?

First, if you’re thinking about selling off an asset that’s performing well, ask yourself: What’s the real motivation? Do you want to book a profit for the sake of booking a profit? Or do you believe that some underlying fundamental has changed?

Next, compare this decision to your investor policy statement, which is your written statement about your goals, timeline, risk tolerance, risk capacity, strategy and style as an investor. Is this decision aligned with your written personal policies?

#2: Status quo bias – Our tendency to overvalue our current situation, such as the mix of assets that happens to already be inside our portfolio. We demand a higher burden of proof to justify any change than we do to justify holding the status quo.

This is often triggered by information overload – when we feel overwhelmed by excess information and too many options, we react by doing nothing.

Psychologist Barry Schwartz calls this the “paradox of choice” – the more choices we’re offered, the more likely we are to not make any decision.

How can we protect ourselves from this? One tactic is to adopt a low-information diet, in which we carefully curate the amount of news and information that we receive.

Another tactic is to look at our resources and imagine that we’re starting from a blank slate. If we didn’t have our current mix of stocks, bonds, real estate, crypto, etc. – if we imagine that we’re starting with our entire net worth in cash – how would we allocate our capital if we were starting from scratch?

#3: Overconfidence – Research shows that people consistently overestimate both their abilities and their predictions of positive future outcomes.

The majority of people think they’re an above-average driver, which is mathematically impossible.

Most people overestimate their probability of getting and staying married forever, of not grappling with fertility issues, choosing a winning investment, or becoming a millionaire.

Today’s interview guest says that he’s aware that, among all the cognitive biases he describes, he’s personally the most susceptible to overconfidence bias. Staying aware of his personal susceptibility helps him keep it in check.

#4: Loss aversion – The sting of a loss is more emotionally profound than the joy of a gain. As a result, our brains are hardwired to avoid losses, rather than pursue gains.

This closely relates to the sunk cost fallacy that fuels the disposition effect, which we described above.

We describe many more cognitive biases in today’s episode. Enjoy!

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#359: The Four Quadrants of A Successful Life, with Andrew Hallam

Money, relationships, health and purpose: life is running smoothly when all four of these elements are working together in tandem, like wheels on a car.

But how can we make spending and investing choices that facilitate stronger relationships, better health and a deeper sense of purpose?

Andrew Hallam, who became a millionaire on a teacher’s salary, shares researched-backed, evidence-based insights into how to find balance, drawing from the worlds of behavioral finance and stock market history.

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#354: Ask Paula: How Do I Make Sure I Don’t Spend the Money I’ve Invested?

Charlie in Cali has enough money saved to pay cash for a house, but she and her husband decided to finance their home, instead. They’d rather invest the money and arbitrage the spread.

But one problem: how can they keep themselves from touching this investment?

Jay is choosing between Fidelity and M1 Finance and has questions about tax loss harvesting.

Nicole and her siblings will be inheriting some properties that they eventually plan to sell. How should they set up or organize these properties among so many owners? Should one person take the lead? Do they need a shared business account? Also, how should they evaluate a property and make sure they get a good deal when they sell?

Ed owns three homes, two of which he plans to sell in the next few years. He plans to live in them long enough to establish residence and take the capital gains exemption when they sell. Is his plan for handling the taxes solid?

We answer these four questions in today’s episode.

Enjoy!

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By Erin @ Team Afford Anything

#329: Challenging Your Confirmation Bias, with Economist Larry Kotlikoff

Have you ever thought about how an economist views financial planning?

Would you guess that it’s vastly different from how some financial planners approach this work?

Today’s guest, Laurence Kotlikoff, is a Professor of Economics at Boston University. The Economist named him one of the world’s 25 most influential economists in 2014. And he’s here to tell us this:

“What we, as economists, are saying with respect to personal financial matters — in terms of our advice — is almost a complete right-angle as to what conventional advice is providing on every topic. How to invest, how to think about investment risk, how to do basic planning for retirement, everything – every single thing – is quite different.”

Professor Kotlikoff has written 19 books and hundreds of professional articles and Op-Eds. He is a New York Times best-selling author, and his columns have appeared in The New York Times, The Wall Street Journal, The Financial Times, The Boston Globe, Bloomberg, Forbes, and other major publications. 

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By Erin @ Team Afford Anything

#315: The Science of Behavioral Change, with Katy Milkman

Do you ever grapple with the differences between your present self and your ideal self? 

Your ideal self might eat healthy meals 80 percent of the time, save 50 percent of their income with ease, set boundaries without apology, or exercise and meditate four out of seven days a week. 

Yet, your present self might struggle to ward off temptation when it comes to food and spending. Your present self may struggle to set boundaries, period. And your present self much prefers sleeping in and watching Netflix over going to the gym. 

You desperately want to bridge the gap between your present self and your ideal self, but no matter what you do, construction stops halfway. 

If that resonates with you, today’s guest, Katy Milkman, is here to share the science of getting from where you are now to where you want to be. 

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By Erin @ Team Afford Anything

#296: Investing is the Art of Probabilistic Thinking

There’s a lot happening in the market.

The Dow is at a new high, there are runaway stocks causing irrational exuberance, and yet, unemployment claims are on the rise. How can this be?

To make sense of this, we’re dedicating today’s show to discuss how improving judgment and using mental models can protect us against risks and short-term thinking. We also touch on the so-called death of cities, and what this means for real estate investors.

This episode is for you if: you’re confused about why the stock market is doing so well while the world definitely isn’t, you’re getting caught up in market trends and wondering if you should make a risky investment, or you’re curious about whether cities will make a comeback after this is all said and done.

Continue reading for a quick preview of everything discussed in this episode.

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