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Tag: prioritizing goals

June 29, 2022By Paula Pant

#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!

Keep reading...

June 23, 2022By Paula Pant

#387: Ask Paula: Is A Crash Coming??

Lila is concerned about inflation and the risk of a recession. Should she invest in the stock market, despite the scary headlines? Or should she pay off her primary residence or her investment properties?

Linda invested in a 529 for her son’s college, and he’ll be starting in the fall. But, the value of the plan dropped right before she was planning on using it and she is wondering how to keep from losing more money.

Jen and her husband want to retire in 8 years. They’re hoping to have paid off their mortgage AND hit their net worth goals when they stop working. How should they prioritize between these two goals?

Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode.

Enjoy!

Keep reading...

May 24, 2022By Paula Pant

#382: Ask Paula: There’s No Such Thing as a FIRE Number

Sara wants to leave her job to spend time with her children, and she needs help in calculating her FIRE number. But is this possible?

Joe is buying his first house hack and would like to understand if the FHA loan or the doctor loan would be better for him.

Kat received a windfall and is wondering if she should invest it in stocks, real estate, or a combination of both.

Aisha is moving to the US and wants to start investing ASAP – how should she approach her goal to reach FIRE?

Former financial planner Joe Saul-Sehy and I tackle these questions in today’s episode.

Enjoy!

P.S. Got a question? Leave it here.

Keep reading...

May 19, 2022By Paula Pant

#381: How to Not Let Your Feelings Hijack Your Decisions, with Mollie West Duffy

Maybe you’re envious of your friend who bought Bitcoin in 2015 and held until it hit 7-figures.

Maybe you’re anxious about rapidly rising home prices.

Maybe you regret that you didn’t buy a rental property five years ago, because – at the time – you felt like prices had already risen so much (from 2012 to 2017) that you just couldn’t justify paying 2017’s pricetag.

Our lives, finances and careers invoke many strong feelings. In today’s episode, Mollie West Duffy, the co-author of Big Feelings, shares strategies for not letting our feelings hijack our choices.

Mollie and her co-author, Liz Fosslien, run an Instagram channel about emotional management with half a million followers. Fosslien is an economist and behavioral scientist whose work has been featured by The Economist, Freakonomics and NPR. Duffy is an organizational and leadership development expert who’s written for Harvard Business Review.

They tackle relatable workplace issues like perfectionism, productivity guilt and Zoom fatigue, among much more.

Enjoy!

Keep reading...

January 13, 2022By Paula Pant

#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.

Keep reading...

January 13, 2022By Paula Pant

#351: The Six Myths of Productivity, with Geoff Woods

Geoff Woods, Vice President of The ONE Thing and host of The ONE Thing podcast, is an expert on ruthless prioritization, habit development, and goal setting.

The simple framework he presents allows you to focus deeply and commit to the actions you need to take if you want to take your productivity to the next level this year.

Enjoy!

Keep reading...

January 11, 2022By Paula Pant

#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!

Keep reading...

May 5, 2021By Paula Pant

#314: Ask Paula – I’m Worried About My Parent’s Retirement. What Should I Do?

Briale opened a Variable Annuity inside a 403b at work when she was 23. She has 17 years to go before retirement. As an elementary school teacher, her pension will be $6,000 per month. Should she stop contributing to the annuity and contribute to a Roth IRA instead?

Debi has an extra $1,000 each month and isn’t sure where to save it. She also has $10,000 in a CD which will reach maturity in August 2021. Her goal is to buy a residence in the next five years. Should she save this all for a downpayment?

Dominique is concerned about her parents retirement portfolio. Their advisor charges a fee of 1.5 percent assets under management. Her parents are frugal and they don’t realize how much they’re paying. Should she talk to them, or drop the issue?

Sarah isn’t sure whether she should put more of her savings towards a Roth 401k or a 529 fund for her future kids. Which option is best if she wants financial flexibility?

Hunter put a credit freeze on his two children’s credit, which required sending each credit union documentation via mail. Experian and TransUnion confirmed the credit freeze, but Equifax didn’t. Upon calling, the representative gave Hunter a different mailing address for the documents. What should he do?

My friend and former financial planner Joe Saul-Sehy joins me once again to tackle these questions. Enjoy!

Keep reading...

April 7, 2021By Paula Pant

#310: Ask Paula & Joe – What Should I Do With $25,000?

Greta is tired of financial modesty. She wants to achieve financial independence through diversified income streams, and has her eyes set on owning local duplexes. What should she focus on to make this happen?

Jeannie wants to know: should you scale back 401k contributions so you can invest in something else, like real estate?

Steph and her husband came into $25,000 and aren’t sure what to do with it. Should they pay off their student loans, save it towards a house and starting a family, or purchase her company stock options?

J from California is curious: how do you strike a balance between optimization and simplicity in your financial plan?

Dawn has $65,000 in a 403b through Ameriprise and the fees associated with it are outrageous. Should she take the money out and put it elsewhere, or leave it?

My friend and former financial planner, Joe Saul-Sehy, joins me to answer these five questions. Enjoy!

Keep reading...

August 13, 2020By Paula Pant

#270: Ask Paula – Buy a Home, Buy Investments, or Pay Off Debt? How Do I Decide?

Briana and her husband want to buy a home, but they don’t have enough saved for a downpayment. They also have student loan debt and a car loan. Which should they prioritize?

Javier is sick of being in debt. What can he do to put himself in a better situation?

Tracie wants to buy her first rental property, but she has student loans and a car loan to pay off. If she receives $20,000 from a cash-out refi, how should she use this money?

Vanitha wants to start a non-profit organization in memory of her uncle. She wants to know: what does this process look like?

Margie went under contract on a primary residence listed as a six-bedroom property. She found out that, legally, it’s a four-bedroom home. Should she re-negotiate the price, or ask for credits at closing?

I answer these questions in today’s episode. Enjoy!

Keep reading...

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Afford Anything

  • Start Here
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