Do you have a healthy savings habit?

Do you have a healthy savings habit?
A good savings habit is the foundation of wealth creation

Even at an early age when you received pocket money, you were faced with the decision of what to do with that money. Some chose to save part of it and put in a bank account (or piggy bank). Those savings became the seed of your retirement capital (whether you realised it or not).

Many people believe that wealth is created by buying and selling assets. While that can explain part of the story, if you never save any money, you’ll never have any capital to “buy and sell assets” with. Savings is the oxygen that feeds the wealth creation fire.

In this article we look at ways to improve your level of savings (and ultimately your ability to attain financial independence). Click Here To Read More

Revisiting the Global Financial Crisis

Revisiting the Global Financial CrisisHow did you feel during the depths of the GFC?

With the benefit of time, we tend to forget the strength of emotions we experienced in the past. I recently came across an email that we sent to a couple who were struggling with the uncertainty created by the Global Financial Crisis . It was written on 19th February 2009 – a couple of weeks before world share markets bottomed.

The email is a good reminder of the heightened emotions that prevailed at the time and the irrationality that they can produce. The couple were imagining all kinds of catastrophes and looking for any other solution than patiently sitting things out. Investor sentiment at the time was pretty low, with pessimists outranking optimists by seven to one.

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The Top 10 Money Excuses

The Top 10 Money Excuses
The following article is courtesy of Jim Parker, Vice President, DFA Australia. It highlights that without a disciplined pre-conceived approach to making money related decisions, it is easy to justify actions that objectively may not be in your best interests.

People rationalise bad money decisions

Human beings have an astounding facility for self-deception when it comes to their own money.

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Beating the “Endowment Effect”

Beating the “Endowment Effect”We overvalue what we already own

Behavioural scientists have identified a number of psychological biases that may interfere with rational decision making. One of these is the so-called “Endowment Effect”, the tendency to place a higher value on something that we currently own than would an objective third party.

Numerous studies have identified this bias. A famous one, referred to in Jason Zweig’s “Your Money and Your Brain”, reveals how the perceived value of a simple coffee mug can vary depending on whether or not the valuer owns the mug. Zweig reports that:

“people demand a price two to three times higher to sell a mug they have just gotten than for one they do not yet have.”

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What if you accepted you couldn’t predict the future?

What if you accepted you couldn’t predict the future?

“Prediction Addiction” is dangerous to your wealth

In our Foundations’ series on Behavioural Science, we identified “Prediction Addiction” as a one of a number of psychological biases that are potentially dangerous to your wealth. We discussed there that:

“We have an in-built addiction to predict that is almost hardwired into our brains. Thousands of years of evolution have honed our biological need to detect and interpret patterns. We hate randomness and we have a compulsion to make predictions about the unpredictable. Our brains seek patterns automatically and most of the time this is occurring outside of our awareness.”

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Five Things To Remember In Difficult Times

“I have not looked at any of my holdings and don’t intend to. I don’t want to be tempted to jump because I think I’d be more likely to jump in the wrong direction than the right one. My advice has always been to choose a sensible diversified portfolio and stop reading the financial pages. I recommend the sports section.”

Quotation attributed to Richard Thaler, professor of behavioral science and economics, University of Chicago Graduate School of Business.[1]

These are difficult times – nobody knows how and when markets will stabilise. We appreciate the emotions they arouse. But you should take some comfort  that our planning process is not driven by what is happening in the market at any point in time. It focuses on achieving your long term financial objectives, based on reasonable projections of long term investment returns.
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