Tag Archives: financial professional

Financial Psychology and Tools for Financial Advisors with Andrew Gold

Financial psychology is a revolutionary concept for advisors, yet few think about how to integrate it into their practice.

It can improve your relationships with current clients, make it easier to land new clients, and reduce your spending on marketing. To learn more about how to integrate the field into an advising practice, we sat down with Andrew Gold.

Andrew Gold is a Financial Advisor at Prestige Wealth Management in the Dallas Fort Worth area. He is in charge of their Investment Strategy and has personally seen how financial psychology has played a role in his relationship with advising clients.

Andrew Gold, Financial Advisor at Prestige Wealth Management

What does financial psychology mean to you?

To me the term “Financial Psychology” means a focus on the good behaviors that come with saving and investing and controlling our behavior than it does about beating the market alone which is why we focus heavily on acknowledging and confronting our natural tendencies which historically have led us to making poor financial decisions. In today’s age, the overwhelming amount of information and choices that the retail investors have at their fingertips can be even more dangerous because of how quickly we can succumb to our emotions. So when it comes to advising clients we believe that it is important to know our clients perspective and historical investment exposure and experience in order to be able to properly advise. For example, it is important to know if your client is just now for the first time seeing money outside their 401k and fluctuating in the daily market versus if they had attempted self managing in the past.

How does your clients’ psychology impact your advising relationships and their financial decisions?

The reality is that advisors are telling clients everyday to “invest for the long run”, “buy and hold,” “ignore the noise,” and “stick to the plan” and they all sound great, but fail to recognize that the emotions that come along with market volatility disrupt even the best laid plans. Instead an advisor should help their clients challenge this conventional thinking, something we discuss with our clients all the time.

What specific strategies or tools do you use to figure out your clients’ financial priorities?

Some of the main things that we like to bring up with clients are:

We are not irrational, we are human.
Set realistic expectations. Discuss “normal” volatility..
Discipline in behavior leads more directly to success in financial markets than investment strategy alone. Smart investing requires an equal balance between the right plan and the right mindset. Dollar cost average. Rebalance. Dividends and compounding work.
Prepare, don’t predict. Market timing is very hard and speculation while fun is no replacement for a sound investment strategy.
Understanding that the system is built for success. Over a 15 year period you have a 99% chance of growing your wealth, the only deciding factor is how many times over will you grow it. So instead of focusing on “beating the market” and beating an arbitrary index or outpacing other investors, let’s focus on achieving the things that really matter to us—a new home, a college education, or a comfortable retirement.

What do you believe is the role of an advisor in contributing to their client’s financial knowledge?

As an advisor we have to focus on being the best educator and accountability partner to our clients, and not just an advisor running a business. There is a very big responsibility that comes with discussing the most intimate details of our clients lives and knowing more about their dirty laundry than 99% of their inner circle. If we can focus on creating better investors and training the right behaviors, not only will our clients have more success but it will prepare them to embrace the opportunity that comes with large corrections in the market from time to time.

Takeaway

At the end of the day, understanding your clients’ financial psychology comes down to managing their expectations and understanding their specific financial goals so you can better allocate their investments. Your advising practice should be about serving your clients in the best way for them with tools like Moneymax, not using cookie cutter financial advice.

The Psychology of Personal Finance with Scott Sturgeon

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No matter a client’s net worth or background, one thing will always impact their financial decision making: their psychology. If you want to be successful as an advisor, you have to understand how psychology relates to personal finance and how to manage your clients’ behaviors, values, and emotions. To get a better understanding of this topic, we sat down with Scott Sturgeon.

Scott Sturgeon worked for almost a decade as an advisor and consultant for wealth management firms with clients in different stages of their lives. He then founded Oread Wealth Partners out of a desire to work with doctors and engineers in helping them pursue the things in life they value the most. Whether that’s more time with family, traveling, or supporting a charitable cause that’s important to them, he helps clients find efficiencies in their finances and make sound financial decisions to more effectively pursue the things they’re passionate about.

What does financial psychology mean to you?

When I think of financial psychology I typically think of behavioral finance, which is basically the “why” behind a financial decision or action. Why am I investing and contributing to retirement accounts? Why are we implementing certain tax strategies? As an advisor, when I meet with a client and get to know their financial situation, I typically come to several conclusions of strategies or advice I think they should implement to help them achieve a personal financial goal. It isn’t just enough to tell them those strategies in a report or something though. I have to not only get their approval to move forward, but also to have them bought in emotionally and psychologically. They have to understand the “why” behind what we’re doing (preparing for retirement, putting kids through college, going on that awesome trip to Europe, etc.)

What’s been interesting to see during my time as an advisor is that regardless of someone’s net worth, we all experience many of the same emotions and behaviors when it comes to money and managing our finances. As an advisor, my role is to help clients find their “why”, incorporating their current beliefs and goals into a financial plan that helps them work towards achieving those objectives.

How does your clients’ psychology impact your advising relationships and their financial decisions?

Being cognizant of a client’s psychology is critical. Every person is different and has different priorities in the way they think about money, how they make financial decisions, and what they value in life. For one client, it may only be about increasing net worth, finding every efficiency, and diligently sticking to a financial plan. For the next, it may be more about how they give back to their community, what charitable causes they support, and how they can ensure their children’s education is paid for. The way those two individuals think and make decisions about money will be vastly different and as an advisor, it’s my role to gain an understanding of how they think. That in turn influences the way I approach giving advice and making recommendations.

What specific strategies or tools do you use to figure out your clients’ financial priorities?

It sounds simple, but I have a list of questions I always ask each prospective client when I first meet with them to determine if we’re going to be a good mutual fit to work together. Some of them have nothing to do with finance whatsoever, but they’re helpful for getting clients to open up about their life and what’s important to them. Once I’ve honed in on what they’re looking to accomplish, I also ask a lot of questions about what I call financial data points. Things like income, expenses, investments, workplace benefits, etc. From there I formulate a financial plan that shows what their priorities are, what steps we’d need to take to achieve those goals, then work with the client to put that plan into action.

What is your best piece of advice you could give about managing client relationships?

Meet the client where they are. You have to bring empathy to the relationship and put yourself in their shoes. You can’t possibly do that until you get to know them and what they want most in life. Once you’ve honed in on that “why”, the other pieces (tax planning, estate planning, investment management, etc.) are all elements and decisions made to support those objectives. Knowing the clients “why” and explaining how those strategies support what they’re trying to do is key.

What is your best piece of advice you could give about getting new clients as an advisor?

I think creating a great client experience is key. An experience that defies what they may have expected in working with an advisor. When you have a great experience at a restaurant, you’re naturally going to recommend that restaurant to all your friends. The same goes generating client referrals. If you can get your clients genuinely excited about the work you do for them, they’re going to encourage others to have that same experience.

Takeaway

At the end of the day, understanding your clients’ financial psychology comes down to managing their expectations and understanding their specific financial goals so you can best allocate their resources. Your advising practice should be about serving your clients in the best way for them with tools like Moneymax, not using cookie cutter financial advice.

How to Work With Business Owners as a Financial Advisor

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There are 582 million entrepreneurs worldwide with over 5.4 million new businesses started in 2021 in the US alone. The number of self-employed Americans and business owners in America is only expected to increase over the next decade and more of your financial advising clients could be business owners as a result. But the financial advice you give to employees might not work for those who own businesses. Instead you have to understand entrepreneurs’ motivations and money situations in order to serve business owners as a financial advisor.

The Psychology of Entrepreneurs

Entrepreneurs tend to think outside the box, consider career achievements a priority and will take risks to achieve their goals. While some follow the typical image of an entrepreneur and run a large company with many employees or own a small business, others are “intraprenuers”, salaried workers who carve out an entrepreneurial niche within corporations or businesses. Others work a full time job and have a side hustle outside the office.

In their money management, entrepreneurs are driven by growth and are willing to take risks as they see them as a necessity for high performance. While wanting to achieve results quickly often helps this type, it can also be a blindspot when it comes to financial advising since assets are often built slowly over time and not overnight.

They also might need to learn how to create more balance in their life. The common stereotype for an entrepreneur includes sacrificing their personal lives for their business, but they might be sacrificing more than just that. Often, this type will sacrifice properly managing their money to instead focus on making more money. As this type learns the importance of money management, they can achieve better financial balance instead of striving for more money without a proper management infrastructure in place.

While intrapreneurs might think like a business owner, the tactical financial advice would be similar to the advice given to employees. There are three other types of Moneymax entrepreneurs which might need different advice than those working for someone else:

Full time employees with a side hustle
Solopreneurs
Entrepreneurs with employees

No matter which of the three types of entrepreneurs someone falls under, all entrepreneurs are driven by professional goals. This personality type is driven to excel and is happiest when they are challenging themselves and striving for better achievements.

While all entrepreneurs have similar motivations, weaknesses, and strengths when it comes to money management, they can be in very different professional scenarios. Each professional scenario has different considerations for you as a financial advisor.

Full Time Employees With a Side Hustle

Many people these days are building side hustles on top of a full-time job, whether that side hustle is a passion project or intended to replace a 9-5 down the road. Clients with full-time jobs and side hustles might have a greater cash flow and more to invest, but they may also have more challenges.

Unlike employees with a consistent income, those with side hustles might have varying income from month to month, making it more difficult to know how much they should be investing. They also might be looking to reinvest in their business instead of building up assets. While you might be tempted to convince them to build up their investment portfolio, you should honor where they are and the investments they need to make into their own business.

To fully understand how to best serve these clients make sure you consider how much money they need to invest in themselves, what the end goal with their side hustle is, and how much the monthly income from their side hustle varies.

Soloprenuers

Solopreneurs can take a variety of forms from freelancers to those who are just starting out in their business and can’t afford to have other employees. These entrepreneurs may have subcontractors to help with their workload or could be doing all the work themselves.

Similar to full-time employees with a side hustle, these entrepreneurs may need to focus more on investing in themselves and their business. It’s important to keep in mind their financial and professional goals when working with them, not how much you could make off their investments.

Another concern with full time entrepreneurs, whether they work alone or have employees, is that they need to fund their own retirement and provide health insurance themselves. Since they don’t have a 401K through a company or company benefits, they need to do more financial planning. With these clients, it’s especially important to focus on building out a sustainable retirement plan as well as a fund to cover benefits such as health insurance and life insurance.

Entrepreneurs With Employees

The most typical image of a business owner is someone who manages employees, has a large overhead, and might have funding from venture capital or business loans. These entrepreneurs’ finances will be the most complicated to manage because there are so many moving parts and stakeholders involved.

Unlike a solopreneur, they have to consider the benefits, employment taxes, maternity leave, and more for multiple employees. They might also have external stakeholders, such as angel investors, a venture capital firm, or a board of advisors. This entrepreneur’s finances not only impact themselves, but the livelihoods and interests of many parties.

In order to best serve this entrepreneur, you need to take into consideration these different groups and what their cash flow looks like. While you might provide them with similar financial advice about building up their assets that you would provide to other entrepreneurs, there are more moving parts to consider than with other clients. Set aside extra time to fully understand their financial situation and the varying stakeholders and considerations these entrepreneurs have.

No matter what type of entrepreneur you work with, you should be working with them as well as working for your own interests. Compared to some other money personality types, entrepreneurs take great pride in their professional accomplishments and often prioritize their business goals above other considerations.

Getting Clients as a Financial Advisor By Setting Yourself Apart

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If you’re trying to distinguish yourself as a financial advisor, you need to set yourself apart from the rest. Every financial advisor has access to similar asset allocation tools, calculators, and risk assessments, but even with the same tools, some financial advisors get more clients than others because they’ve learned how to distinguish themselves from the competition.

One of the best ways to distinguish yourself from your competitors is by offering a more comprehensive, holistic service that achieves the personal financial goals of your clients and attracts new clients because they feel like you really get them.

While it can be tricky to offer more holistic financial advising services, it doesn’t have to be. One financial advising tool can offer you the perspective you need to stand apart from your competitors in fifteen minutes or less!

Offering a Holistic Perspective

Financial advisors often focus only on the money and not on the money manager. While it might make sense to us to offer objective advice, money can be a very emotional topic for many people.

It’s not enough to only understand how the financial side of advising works, you should try to understand what influences your clients’ money decisions and what they value financially. Do they want to invest more in travel or in starting a family? Are they optimistic or pessimistic about their money situation? Knowing details like these gives you a more holistic view of what sort of financial advice they need. You need to know your clients’ financial psychology.

When you hear this term you might say, “Psychology? I’m not interested in becoming a therapist!” And that’s not exactly what it is. Financial psychology simply lets you know more about why your clients and prospective clients make certain financial decisions. It takes the guesswork out for you and makes your clients and prospects feel understood.

However, learning about your clients’ financial psychology can be time intensive and some of it can be difficult to learn just from asking questions. While there are some tools out there that help you understand parts of your clients’ financial psychology, such as risk assessment tools, you need a more holistic approach to understanding your clients.

What is Moneymax?

But what is this secret tool that can set you apart? Moneymax!

Moneymax helps you stand out because it’s unlike any other financial advising tool on the market and it adds empathy and personality to your advising.

Studies show empathy drives better client relationships and better portfolio performance. This tool not only lets you learn more about your clients, it also shows your clients that you, as their financial advisor, really understand them. Maybe better than they understood themselves!

Moneymax puts you in a position of more trust and strengthens your ability to lead a client more effectively to their financial goals. The Moneymax tool allows you to:

Truly “get” your clients
Increase your prospective client conversion rate
Develop better relationships with your clients
Have less sales-y interactions and more meaningful ones

No matter what type someone gets, the Moneymax quiz makes your clients feel like you truly “get” them and transforms sales-y calls into more authentic conversations. If you’re ready to take your financial advising practice to the next level, it’s time to invest in Moneymax!

How the Moneymax Tool Was Created

This Moneymax quiz was formulated as a part of a research study in the 1990s. It’s been retested two times since then and had the same results, making it a timeless quiz you can use for years to come. It measures where your clients fall on a scale of 1-100 for 13 characteristics. Based on their results for those 13 characteristics, they will be assigned one of nine personality types.

Moneymax is a personality assessment based on research by Dr. Kathleen Gurney. It gives you insight into your client’s money personality and money management preferences.

The assessment takes clients’ only minutes to complete and provides a meaningful report about their money personality. With Moneymax, you can provide your clients:

More appropriate asset allocation
Greater satisfaction with the process
More confidence and peace of mind
More efficient communication

Whether you use Moneymax or not, it’s important to approach your clients with a more holistic view of their financial psychology. Understanding the full picture will set you apart from competitors and will lead to a long-term, mutually beneficial relationship.

That being said, Moneymax is the easiest and most effective way to understand your clients’ financial psychology and how to guide them towards the best financial decisions. Don’t believe us? Subscribe to our newsletter for an exclusive deal to try Moneymax’s profiling tool at a discounted price.

How to Get More Financial Advising Clients in 2022

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If you’re looking to grow your financial advising practice in 2022, you need a tactical plan to get more clients. Getting more clients should depend on one thing: creating authentic connections with prospects.

In order to do this, you most likely need a marketing strategy and need to use financial psychology. Neither has to be complicated. Here are five easy ways to get more financial advising clients in 2022.

1. Utilize your LinkedIn

Social media marketing is all the buzz and all professional service providers should have a presence online. However, that doesn’t mean you have to start making TikTok where you dance and give financial advice.

One of the best platforms for professional service providers is LinkedIn. LinkedIn allows you to connect with your current professional network and use their search tools in order to expand it. It also offers the opportunity to directly message people, comment on people’s professional accomplishments, and more.

Two of the most important tasks to do on LinkedIn for 2022 is to optimize your profile so those searching for a financial advisor can find you and to consider having a LinkedIn services page. A service page is especially good if you’re self employed and in the early stages of your business.

To optimize your LinkedIn profile, make it clear what you do and who you help in the tagline, cover photo, and bio. A common mistake many people make is trying to showcase their accomplishments in a way that makes them look good on LinkedIn. Instead, frame your accomplishments so they show the benefits of working with you to prospective clients.

2. Create a referral offer for current clients

Despite all the advancements in the world of digital marketing, one of the best marketing tactics has been around long before Instagram, LinkedIn, or even MySpace: the best marketing is a happy client.

If you want to get more clients, ask current clients if they know anyone who might need your services. Feel free to even describe who your ideal client is. However, it’s also important to keep in mind that almost everyone is busy today.

In order to motivate current clients to give referrals, create some sort of incentive. This could be a $5 Starbucks gift card or a discount on one of your services. It doesn’t have to be big; even small incentives can go a long way.

After you have your incentive and list of clients to reach out to, craft a templated email you can send asking for referrals.

3. Develop a marketing strategy

Along with referrals and LinkedIn marketing, there are many other marketing tactics you can utilize. Which ones work best for you depend on your ideal demographics, resources and money available to invest, and personal preferences.

For example, if you’re targeting young professionals, digital marketing should play a big role in your marketing strategy with an emphasis on video content and newer platforms like Instagram and TikTok.

If you want to reach more seasoned professionals who want to improve their retirement plan, you might be better off with print advertisements or going to networking events in your local community.

There are so many marketing options available today. To figure out what works best for you, define your ideal client and create a plan to reach them where they hang out online or in person.

4. Pitch the story of your business to local media

While this one is a long game, being featured in the media can add credibility to your business and might bring in potential clients. You also don’t have to try to be featured in the New York Times or Washington Post for this to be effective.

In fact, being featured in local media may be even more beneficial as it’s only people within your community reading it.

To get started, write down your business’ story. Try to make it as interesting and insightful to the public as possible. You could also think of ways you could pitch a story which offers financial advice to the readers or watchers of local media.

After that, make a list of any local news channels, newspapers, or other media outlets which might be interested in your story. Try to find the media contacts who cover financial news or other similar types of stories. After that, craft an email pitching your story and see how they respond!

5. Create a better process for recruiting potential clients

While increasing the reach of your marketing efforts is great, you also want to increase your impact on potential clients who come across your brand. The best way to do this is to have a streamlined pitching and onboarding process. One of the most important parts of the pitching process is selling authentically. It’s also one of the most difficult.

We’ve all been on the receiving end of a sales pitch that sounds, well, sales-y. And if we’re being honest, those pitches make us want to flee instead of buy whatever the pitch is selling.

One of the best ways to avoid sounding sales-y is to create a genuine connection with prospective clients and make them feel like you get them. Luckily, there’s a fast, accurate way to get to know them before they even step into your office or onto a Zoom call: Moneymax.

Moneymax is a personality profiling tool that let’s you know where a client or prospective client falls on a scale for 13 different financial psychology characteristics. It gives you a holistic view of how they view money across a variety of facets, from investing to asking for a raise at work. Understanding the full picture of how a prospective client views money allows you to turn a sales pitch into a conversation where you’re working together to discuss the client’s financial future.

Since we believe so much in the power of Moneymax, we’re offering 10 free profiles to anyone who tries out the tool and posts about it on their social media. Subscribe to our email list for free to learn more details.

What’s Your Comfort Level with Taking Financial Risk?

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If you’re puzzled in how to honestly respond, you’re not alone. Most people find out their true comfort with risk only after the fact—after they’ve lost money. Then, and only then, do they really know how much they can financially and emotionally afford to lose.

Your risk tolerance is your ability to make decisions, trading the known for the unknown, and to be comfortable with the decision once it is made.

Before you can begin to understand how to gauge your comfort level in taking risks with your finances and investments, think about how you feel in general about giving up something you know now without being certain of what your return will be in the future. The possibility exists that what you get will be less than your investment.

There are several reasons that risk is mystifying and elusive:

Tolerance for risk is difficult for most people to accurately gauge because it is a socially desirable trait, at least in the United States. The USA was founded by brave individuals who risked their lives and ventured into an unknown land for a greater sense of freedom and independence. Ever since, entrepreneurial behavior has been revered and rewarded. So, people like to believe that they’re higher risk takers than they truly are. They want to believe that they’d step up to the plate if they saw an opportunity for significant financial gain..

The truth is that most people would rather not gamble and take the financial risk because they would regret the potential loss in the process. They are not certain they will reap a just reward for the risk they’d take.

When you search your minds and hearts for your own sense of what risk means to you and how much risk you can comfortably tolerate, keep in mind that you, too, may be swayed by what you’d like to believe. Ask yourself how much money you can financially afford to lose. And then ask an equally important question—how much can you emotionally afford to lose? How will you weather the financial and emotional loss?

So what’s beneficial? Should you aspire to be a low, medium or high risk-taker? There’s no right answer or one-size fits all when risk-taking is involved.

Here are some guidelines that may help you in trying to gauge what’s appropriate for you in achieving your goals and objectives:

– Impulsive risk-taking usually pays off with buyers or sellers remorse.

– Calculated risk is always the preferred strategy and surest bet to make.

– Don’t risk more than you can financially or emotionally afford to lose.

– Look at what you may lose from risking as well as what you may gain.

– Experimenting with risk is more costly with age.

You can increase your comfort level with risk slowly and consistently over time—taking small but consistent steps which will eventually lead to bigger gains than a one-time gamble on the risky move paying off. Your confidence in yourself will also increase in the process if you succeed over time.

Take a look at this brief video with three financial advisers describing how they speak to their clients about risk and how to gauge what it means to them: http://www.cnbc.com/id/102397145

Stay tuned for Part 2 of “Gauging Risk” by understanding the money personality traits which play a big part in how you relate to risk.

Managing Anxiety in a Nervous Market

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“I no longer watch CNBC with my coffee every morning. I find that I just don’t want to be more confused and feel more anxious. I just don’t feel as optimistic as I used to–my whole mood has changed. I guess I’m feeling a sense of heaviness, uncertainty-maybe even a bit of depression.”

“My statement has sat in my unopened emails for weeks. I don’t want to look at or know the balance. I own a lot of shares of each stock and it’s great when the market is going up because there are big gains. But when it’s going down, I have to face large losses.”

I had these conversations last week with two knowledgeable and confident investors who are generally quite comfortable with volatility. Both of their “Entrepreneur” Moneymax® Profiles suggest that they are both highly motivated by performance with tendencies to take higher but calculated risks.

Often Bull markets are like blinders. Investors begin to believe in the fantasy that their stocks will always take good care of them and never disappoint them.

Since the “Great Recession”, the market has reinforced such fantasies. It has been a bull market for the past five years with one small exception in 2011 with a 10% pull back. Recently we have had the worst three days in three years.

In my years of experience, as a psychologist specializing in the psychodynamics of money management and investing, I’ve come to realize that there are certain important relationships which we must understand before we can achieve a consistent degree of success in the world of investing and in the marketplace.

• The first and foremost of these is that the majority of losses in the marketplace result not from poor trading decisions but rather from emotional and attitudinal causes.

• Investing by its very nature is an emotional business. Few investors have the self-knowledge, emotional stamina or self-control to make rational, intelligent and profitable decisions, particularly in times of stress.

So, often investors react wildly to bad news, often selling shares of perfectly good stocks. Had they held on, they would have realized that. But they, as many investors, react with their emotional money minds rather than their rational ones. They usually are at the “effect” of their feelings and not managing them well.

Why is it that some investors make rational decisions, stick with their choices and strategies while others act out their emotions and make bad investment decisions?

The field of Behavioral Finance has given insight into the mental miscues investors make that sabotage and crimp their returns:

• Fear of losing money

Psychologically, people give greater weight to a past loss than they do to a future gain. In fact, some investors find losing money so distasteful that they psych themselves out of investing altogether.

Investors don’t make reasonable trade-offs. The drive to avoid loss really sabotages any future gains or opportunities.

Solution: Determine ahead of time exactly how much money your clients can “emotionally” afford to lose as well as “financially”. They are often very different.

• Worrying about the wrong risks

Investors are held captive by unpredictable yet frightening events. People are traumatized by dramatic events. They can’t tolerate this anxiety.

Investors become blind and deaf to others’ advice in these times and tune out that advice, including their advisors’. They exaggerate current crises. What’s worse is that they forget the wisdom of lessons from the past. They overlook the fact that people who stayed fully invested during previous volatile times recouped their losses.

Solution: Help your clients base their decisions on what they can control, not on those they can’t control. Give them the rationale for their current strategy and
reiterate why it still makes sense. Repeat it several times and intermittently so they can hear it and use it as a guideline in regulating their knee-jerk and emotional reactions.

In other words, there is a vast world of emotion under the surface structure of investing. To know and understand the motivating forces behind investing, to know and understand why one investor becomes tense about losses, why one becomes greedy about profits, and why one either overreacts or fails to react is, perhaps, more than half the investment battle won. There is a high price to pay for the kind of innocence many investors bring to their investments and the way they interact with their investment advisors. Unfortunately, in many cases, to help your clients continue to maximize their financial returns, you must first help them master their emotions.

Investors Flight from The Market May Indeed Be A Rational Defense

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Some experts are calling the recent mass exodus of small investors from the market an irrational reaction to unfound risk; others are hypothesizing that small investors need cash and their home values no longer support equity loans to survive so they are using their 401k investments to pay bills.

Personally, I feel small investors are feeling a tremendous level of anxiety and are having difficulty managing it. Their high level of anxiety and their inability to tolerate it precludes them from keeping their money in the market for the long-term and continuing to believe that they will be okay. The true definition of a suitable investment strategy is whether investors can maintain it over time – even anxious and volatile times.

Apparently, these investors are incapable of managing the stress of being in what they deem to be a risky strategy. But even sophisticated investors and professional money managers are anxious and unable to predict current and future risk in the market. So why should the small investor be any different. The difference may lie in unrealistic expectations and inappropriate risk taking that led the small investor into the market in the first place that is the real problem. If they weren’t diversified; if they didn’t understand the downside and determine whether they could withstand it, then they are feeling much greater stress and lack of tolerance in coping with their current feelings of anxiety and distrust.

There are a myriad of reasons why investors have reduced their exposure to securities and gravitated to what they perceive to be less risky investments like bonds, cash, and other fixed income vehicles. Perception is a subjective reality that is difficult to alter with objective facts. The problem is compounded by the volatility of today’s market and objectivity being illusive. You just have to listen to CNBC for a while and you’ll hear experts hypothesizing, and disagreeing whether we’re out of a recession or just heading into another. So how is the small investor to feel confidence or a sense of trust that the market will be kind to them if they stay? At least by doing something, they feel they have taken some action in their best interest rather than remaining frozen from fear.

I have empathy for these small investors who fell into the trap of feeling that they would be saved by the boom in house prices, stock market rallies and the optimistic view that kept all of us believing that the good times were here forever. For those who did not save some of the rewards from those flush exuberant times, or diversify to manage the potential downside of such a upside for the market it is a particularly stressful time. It is a time of reflection to learn valuable lessons for the future as well as a time to take an inventory of what can be done to manage personal financial insecurity and stress.

What my work has taught me is that the ability to tolerate anxiety and fear, manage stress and take small and consistent steps to control what can be controlled is often a defining difference between achieving a successful solution and optimistic financial future or sinking further into financial stress and insecurity.

Needed for Our Time: A New American Dream

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Do you find yourself thinking about your expectations for financial well-being and how they’ve changed? We hear about this subject daily and we are all left with that puzzling question of what our future will hold? Americans are known as the eternal optimists always finding hope and feeling like we can fulfill our dreams to have the “good life”. However, in talking to many of our regular community members on www.kathleengurney.com, I’m finding a very different sentiment. Instead of optimism; I hear fear, anxiety, uncertainty, and even pessimism.

How soon might we find a crystal ball? Wouldn’t that be great? We all want reassurance that we’ll be okay. Of course, as adults we know that we can always do something in our own behalf to empower ourselves, but I find that there’s a desperate desire for the road map of how to get there from here.

So, in this state of distress. we can all follow the prudent advice of the rehabilitation programs that advocate day-by-day planning and focusing on what we can control. For me, I know that I can manage my anxiety about the future by having a concrete plan for my priorities. I try to make my goals reasonable, realistic and rewarding. My clients tell me they use those three descriptions and use them to manage their financial behavior and feelings. Clients find that my advice to take small steps consistently and purposefully help them achieve big gains over time.

So, maybe our new dreams will evolve and become clearer as we all start to focus on what’s most reasonable and rewarding for each of our individual situations.

Boomers Willing to Wait to Get What They Want and Say They Need

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The quest for “the good life” continues to drive Baby Boomers to sacrifice today, so that they can enjoy the finer things tomorrow according to a MainStay Investments’ Boomer Retirement Lifestyle Study. A majority (76 percent) of Boomers surveyed say they are willing to spend less now to invest for a more comfortable lifestyle in the future.

When it comes to lifestyle, Baby Boomers are redefining what constitutes a basic need and what they consider a luxury. They have clearly expanded beyond the three traditionally thought-of necessities – clothes, food and shelter.

An interesting pattern that emerged in the research was that as Boomers age, things that were once considered luxuries are more likely to be considered basic needs–thereby reaffirming that Boomers essentially want it all.
The lesson for us, in my opinion, is to be clear about what gives us a sense of peace and safety and pleases us most. We need to understand our priorities and their price. It’s also important to clarify and understand the difference between want and need.

Money for needs can be classified as survival money and safety money while money for wants can be classified as freedom money, gift money and dream money perhaps. Our hierarchy of financial needs and wants can then be ordered so we may plan suitably for our survival and safety first. Only then should we incorporate our wants for a sense of freedom and self-actualization.

Because time can never be regained, it’s vitally important to understand the cost – financial and psychological – of putting off until tomorrow what might satisfy us today in moderation. It’s a difficult call to make whether we’ll be successful in affording our wants and wishes in the future. If we have a moderate and realistic plan understanding our needs and wants with timelines for accomplishment, we will always know where we stand. Then we can be certain that we know what we can afford and when. It’s impossible to get back precious time once it’s gone.