#39 7 Investing Lies We Tell Ourselves and How to Avoid Them

If you're working towards retirement you know that investing wisely is a key part of reaching your goals. The problem is investing means putting your money at risk. That's stressful. As a result, many of us tell ourselves lies or believe "trues" that can be dangerous to our financial future. In this episode, I'll discuss 7 lies we tell ourselves about investing and how to avoid them.

INVEST WISELY

The 7 Lies We Tell Ourselves About Investing

There is too much uncertainty right now to invest
I'm not wrong, the market is
Thinking the current trend will continue
I just need to hold a losing investment until I get back to even
Past performance can predict future results
I just need to find an investment guru
Investing alone will make me wealthy

How to Avoid Them

Come to peace with the fact that the future is unknowable
Educate yourself about how investment markets work
Use a sound process for investing
Diligently monitor and adjust your plan as your life unfolds

PLAN WELL

Last month I conducted my 1st annual listener survey. A big thank you to all that participated.

Here are some interesting facts about you:

100% of you are male (do ladies not take surveys?!!!)
73% of you are over 50 (makes sense)
73% of you have been married over 20 years (great job!!)
On average you have 3 children
42% of you say you never plan on retiring (I'm with you on this)
Top retirement concerns include
- Investing and the economy
- Healthcare costs
- Running out of money
Top retirement goals include
- Spending time with spouse
- Spending time with family
- Travel

Some of your top questions you need answered are:

What's the best way to invest for income?
When is a will sufficient (without a trust)?
When should I start social security?
How do I create passive income?
What is the right portfolio mix during the different stages of retirement?
Will the popularity of index investing cause more investment bubbles?

In future episodes, I'll work to answer each one of these questions.

What is the #1 Thing You Struggle with As You Work Towards Retirement?

[spoiler]

The Retirement Answer Man Episode #39

All right. Well, welcome! This is Roger Whitney. I am the Retirement Answer Man and this is the show dedicated – well, it’s really dedicated to you to help you learn to live well today without sacrificing your tomorrow. I think, financially, that’s what we’re always trying to do as we make sound decisions in our life and the way I do that is, each week, I try to share some pearls of wisdom – well, I think they’re pearls of wisdom – from my 24 years as a financial advisor on how to plan well and invest wisely in your life.

In our Invest Wisely segment today, I want to talk about the seven investing lies we all tell ourselves from time to time and these are all really dangerous. If we’re going to invest wisely, we need to be aware of these so we can work to avoid them.

In our Plan Well segment, I want to talk a little bit about, well, I want to talk about you! Just recently, I did my first annual listeners’ survey where I sent out a survey to all of you that are signed up for the Retirement Answer Library and I asked you some very basic questions – hopefully they were too intrusive – to learn a little bit more about you. I want to talk about who you are. And then, I have a little ask for you about some of the things that you’re struggling about so I can work to serve you better. That’s what we’re going to talk about in the Plan Well segment.

Let me turn this music down. I have to tell you something. Let me share a little personal here.

My podcast studio is in the upstairs of my home. That’s where I produce the podcast and I have an equalizer I run all the sound through to try to produce good quality for you. Last week, my daughter had a friend sleepover and they were watching the TV in the same room that my podcast studio is in and I think they messed with my equalizer knobs. I think they turned all the knobs and the sound isn’t quite the way I want it to be. Hopefully it doesn’t come over on your end but I’m a little frazzled. I’m a little bit of a control freak. I don’t touch my knobs and I think somebody messed with my knobs. But I’ll work through that to serve you here.

You can find me at rogerwhitney.com. That is the home of the Retirement Answer Man and that’s also the home of the Retirement Answer Library and we’ve had a number of people sign up for this library over the last week. I think we had our biggest week ever of people registering for the Retirement Answer Library which is awesome.

What’s in the library is over 20 checklists and worksheets that you can use immediately to help make smarter financial decisions in areas of your financial life. If you don’t see a resource in there that you have a question about that you think that you need, just tell me. If I can’t find a good resource with a good checklist, I’ll work to create it and add it to the library because it’s there for you. The cool thing is you can get access to this library of worksheets and checklists totally for free. You just go to rogerwhitney.com and click on the right-hand side and I’ll send you login information and you’ll have access to that library as it grows into the future.

All right. Before we get started, I need to have that al-important disclosure and it’s an important disclosure today because I’m very compliance oriented. I’m the chief compliance officer of our firm and I take that very seriously. We’re in the middle of an SEC audit which is a normal thing. But – I’ll tell you – those guys know what they’re doing. They’re very highly trained and they’re looking out for the public so this compliance stuff – especially going through this audit – is definitely front and center so you have to remember that this podcast and my blog and, you know, really anything on the internet, you need to consider it as helpful hints and education because we don’t know anything about you. I’ve never met you! So, how can I give you any advice? This is helpful hints and education. Before you make any decisions, consult people that do know you, and that could be your legal advisor, your tax advisor, or your financial advisor. Whatever your team is, talk to them. That’s not only a great legal disclosure; it’s a fundamental principle of planning well and investing wisely.

All right. Let’s get to our Invest Wisely segment.

Have you ever told yourself a lie? It’s a little bit rhetorical. I think we’ve all told ourselves lies. A lot of times, we don’t even realize that we’re doing it. The author Derek Landy says the lies we tell other people are nothing to the lies that we tell ourselves and I think that’s really true. I think that’s especially true in investing so I want to go through seven of the most common lies that I see that we tell ourselves as we invest. Hands up! My hand’s up! I’ve told myself all of these lies from time to time in my 24 years and I have to work through diligence and process to avoid them.

What’s that first lie – that investing lie – that we tell ourselves? It’s: “I’m waiting for more certainty. I’m going to invest. I know I need to invest for retirement. I know I need to invest to provide income for my family in retirement. But not right now. I’m going to wait for some more certainty,” and there’ll be this magical bell that will ring that says, “Okay. The ‘all clear’ is there.”

That is a very dangerous lie. Bluntly, it’ s a lie that many of us have been telling ourselves for the last four years – since 2008 or 2009 – and the markets have done extremely well for the most part over those four or five years and we’re still waiting for certainty. Thinking that you have to wait for certainty to invest can cost you years of potential returns and distraction and not move you forward to your goals.

The second investing lie that I hear all the time is: “I’m not wrong; the market is. I know I’m right about this; the market just has to figure it out,” and that could be an individual investment that we make where we think we have some unique insight or it could be that we’re making some big market call whether it’s the market is going to crash or it’s going to rock so we make a big bet there. As it plays out and it looks like our investment or our call was totally wrong, we start to get a little arrogant about it and say, “No, I’m not wrong; the market’s wrong and it just needs to figure it out. It’ll figure it out and catch up with me.”

That’s a very common lie that we tell ourselves because you have to think about this. The market is what? It’s made up of hundreds of millions of participants worldwide – a lot of them extremely intelligent with vast research departments and analytical tools. As a crowd source, generally, the markets are very efficient so that can be a very dangerous lie to think that we have some special unique ability or insight that a hundred million-plus smart people trying to do the same things don’t have.

The third investment lie that we tell ourselves – and this is a really scary one because it’s one that creeps into us that we don’t even realize we’re telling ourselves – is thinking that past trends will continue and that’s just a natural human emotional condition, especially when you’re looking at markets. Think about that.

When markets are positive and we see statements going up and we’re feeling better about ourselves, our natural optimism and outlook increases which causes us to feel a little bit loose. “Okay. We’re willing to take a little bit more risk. We’re willing to look out into the future a little bit and make future decisions because things have gone so well for us.” Likewise, when things are bad, when the markets are bad and things are going down, we don’t look out into the future. We start to get more pessimistic. We start to look down – down at our feet – about our next step and making sure we don’t trip on the next step in investing. We get a lot more pessimistic. What ends up happening – and many studies have shown this – is that we tend to think in investing that, whatever the trend is, that’s going to continue way out into the future so that’s how we make decisions and that could be overly pessimistic or overly optimistic.

In reality, markets of all types are extremely cyclical. They go in cycles. They generally grow very quickly or for extended periods of time and then they consolidate to weed out the weaker players and that could be any type of market, really. So, that’s a very dangerous lie and that’s one that just sneaks up and you don’t realize you’re telling yourself because it’s like a frog in water – as they boil it, it just slowly increases that optimism or that pessimism so it just creeps in there.

The fourth lie that we tell ourselves is: “It was a bad idea. Yeah, I shouldn’t have made that investment, but I’m going to hold it until it gets back to even. I don’t want to take a loss on it.” That is a very common one because, psychologically, if we take a loss, it’s admitting that we were wrong in some aspects, right?

In investing, a lot of times, what will happen is we’ll do that and, over time, we’ll have lots of losers in our portfolio that were still waiting to get back to even and, as winners go up, we sell them to buy new things and we end up with a portfolio of a bunch of losers that were still waiting to get back to even. After the tech crash in 2000, 2001, there were a lot of people that held lots of individual equities and even mutual funds that were very technology-oriented that, literally, I think some of those things aren’t even back to even today and we’re well past a decade. It can take forever if you buy an investment or asset at the wrong price to “get back to even.”

You really need to look at it as, “At any given time, I have X amount of assets,” – whether it’s a loss or a gain – and is the investment the best place to deploy those assets, to serve whatever it is your higher goals are in terms of retirement. That’s really how you have to look at it so that’s a very dangerous lie to tell yourself.

The fifth lie that we tell our self is: “Past performance will predict future results.” That’s an interesting one. I think that’s one that we tell ourselves because we’re trained to buy things that way. If I’m going to go into a Home Depot because I need a new washer, I’m going to go into the washer aisle and I’m going to say, “Oh, I like the blue one.” I guess they don’t make blue washers but I’m going to look at the silver washer and I’m going to go look at all of the benefits that washer has, right? It has five different spin cycles and I can make big loads and small loads and all these other things. I’m going to look at all those benefits and look at the price and that will determine, if I buy that washer, I get those benefits. We’re trained to buy that way in our economy so, when we look at an investment, it’s natural to do the same thing.

I need a mutual fund so I go to the mutual fund aisle and I look at Mutual Fund A and I look at the benefits. “Wow! Over the last year, it performed that. Over the last five years, it performed that. Yeah, I want that! I want those benefits.” We’re trained to buy products that way so, when we look at investments, we like to look at the past performance of an investment because we equate those to benefits that we’re going to get going forward which isn’t the case. In fact, any mutual fund investment brochure that you get says it pretty boldly on the bottom. “Past performance does not guarantee future results.” In fact, most studies show that past performance is a very poor predictor of future results but because we’re trained to buy benefits, we approach investing that way as well so that’s a very dangerous lie that we can tell ourselves.

The sixth investment lie that we tell ourselves is that we just need to find an investment guru or a retirement guru or whatever kind of guru. With investing and retirement planning, there’s so much uncertainty surrounding it that we want to look to somebody who has the training and the insights and the expertise and the resources – that special little nugget, that silver bullet – that will take away all that uncertainty for us.

We tend to like to look for gurus or somebody that has some unique insight. I’m going to tell you bluntly, after 24 years, there aren’t any. There aren’t because the future is unknowable. Unfortunately, because we are so uncertain and finance for a lot of people is very foreign, we’re very susceptible to sales messages from perceived investment gurus because we’re looking for that uncertainty and I’m here to tell you that there are none, that the future is unknowable. You almost need to run away from people that have that, you know, “I know what’s going to happen and I have this special system.” You almost need to run away from those people and go towards the messier people that have a sound process that give less guarantees which is very counterintuitive.

And then, the last, the number seven investing lie that we tell ourselves is that investing alone will make us wealthy, and I’ve said this before, investing in common investments – stocks, bonds, and things like that – it’s not meant to make you wealthy. Historically, it didn’t make people wealthy; it helped preserve and grow wealth over a very long period of time, and it is true, if you invest with a long enough time horizon, the compounding of a sound investment plan can be extremely powerful. But, in general, wealth needs to be created through our efforts – through our enterprise and our savings and our prudence – and investing is just part of the solution; it is not the solution. If we don’t have those other very basic things down, no amount of 401k contributions will make you “wealthy” unless you have very long periods of time.

So, how do we deal with these seven investing lies that we always tell ourselves. Well, I would recommend – and, by now, you’re probably going to guess it – you have four things you can do.

One is you need to accept that the future is unknowable – not just in the investing world, but in your life. You need to accept that the future s unknowable because that really frees you to start to deal with that uncertainty in a prudent way.

Once you accept that the future is uncertain, now you can work to understand the history of markets and how things cycle and how things have worked so you make informed decisions. And then, you can develop a process based on understanding history and how things work and you can implement that process and then, finally, and this is the key, you can work to have the little conversations to follow that process, hold onto that compass, and make lots of little course adjustments along the way so you can work your way towards the financial goals that you care about most and avoid these seven investing lies.

So, you’ve got to accept the uncertainty which frees you to start to understand the true nature of how things work historically and you can build a process to manage through all that uncertainty and then have those little conversations so you can make lots of course adjustments along the way. That is the best way that I’ve learned over 24 years of avoiding these seven very common investing lies that we all tell ourselves.

Okay. Now, enough about investing; let’s get to the Plan Well segment.

The listener survey, let’s talk about you, okay? Do you know who you are? Well, I know a little bit more about you and this will help me serve you better. Let me share some of those results and then ask you for some help so I can serve you a little bit better in the future.

In this listener survey that I sent out about a month ago, I asked ten very basic questions and I designed them not to be intrusive because I want to respect your privacy but I designed them so I could learn a little bit more about who you are so I can tailor the content to serve you best.

Let me go through each one of these questions and see if this makes sense or resonates with who you are as a listener because our audience has probably more than doubled since I took this survey and it wasn’t really that long ago.

Question one was, “What is your gender?” and I was a little surprised by this – 100 percent male. So, everybody listening is a man – unless you didn’t answer the survey. That actually sort of depressed me. Other than my wife, I’ve never really done well with the ladies, I guess. Everybody that answered said they were a man so I guess I need to work on making this a little bit more diverse and maybe the ladies just didn’t want to answer this question.

First question was, “What gender are you?” and everybody that answered said they were a man.

The second question of who you are is, “What is your age?” and I gave some ranges from 18 to 20, 21 to 29, 30 to 39, and so on, and 73 percent of you are over 50. That makes pretty good sense, right? This is the Retirement Answer Man Show so right around 50 is when you really start thinking about retirement so that makes total sense. I’m going to guess that most of you can resonate with that.

The third question is, “Are you married?” Again, 100 percent of you are married. That’s cool. I’m glad about that. 100 percent of you are married so, generally, we’re dealing with families here.

The fourth question was, “Okay. If you are married, how many years have you been married?” and I like this one. I had 40 percent of you answered, “So long I can’t remember!” So, 40 percent of you have been married a long time or at least it feels like a long time. But 73 percent of you have been married over 21 years – bravo, bravo! That’s very impressive. Long, strong marriages; very impressive.

The fifth question was, “How many children do you have?” and about a third of you had, well, let’s see, 49 percent of you had three or more children. About half of you had over three children and half of you had one or two children. So, long marriages with children.

The sixth question was, “In how many years are you planning to retire?” Now, this one I liked. I was a little surprised by this one. 42 percent of you said never – that you’re never planning on retiring – and, if you were to ask me, when Roger Whitney is going to retire, I’d say I’m not planning on retiring. I’m working to structure my life so I can live well today without sacrificing my tomorrow – that’s one reason why that’s the purpose of this podcast. But 40 percent of you said never. And then, the next largest percentage was within one to five years. It makes sense, given that most of you are over 50, either you’re thinking that you’re just never going to retire or you’re getting real close.

The seventh question was, “Rank these retirement concerns in order of importance.” I won’t read them all here but the top two were investing in the economy and health care costs. And then, after those two was inflation and running out of money and maintaining your standard of living which makes total sense. Those are the most common concerns that I get in my practice as I work with clients. Those were your top concerns about retirement.

Now, question eight was, “What are your top goals in retirement?” and I asked you to rank your top goals in retirement and this makes sense given the longevity of all of your marriages. The number one goal from the listener’s survey was to spend time with their spouse. That’s pretty cool. I think that’s very cool. That’s the number one goal of most listeners. Right after that was spending time with family which makes total sense given the first one. And then, after that were travel and spending time with friends and volunteering. And then, a good percentage of you wanted to start a business as well. So, you’re getting a feeling for who all of you are so you’re not alone in a lot of these aspirations because you tend to be grouping together in a lot of these.

Question number nine was, “What is your top question about planning for retirement that I absolutely need to answer?” and I’ll read you a few of these responses and, by the way, each one of these responses, I’m going to work to answer in future episodes, specifically. So, one was the best way to take income from a portfolio. Another was, “When would a will without a trust be sufficient?” “When to start social security?” “How can I really have enough to live on when I’m unable to work and still pass money to my children?” and that’s a hard one, huh? “How to create passive income when I have very little retirement income to rely on,” and, “If I have limited dollars, what’s the number one recommendation you’d have and where or what vehicle to put my money into?” “Huge fan of dividend paying stocks, was a Dave Ramsey guy for a long time but buy long-term and invest the difference but boy was that a mistake in 2008.” I think a lot of us felt that way. That’s a very specific one we’ll try to address.

And then, the last question is, “What is your top question about investing for retirement that I absolutely have to answer?” Let me read a couple of these for you. “If all the retirement money chases ETF index funds, how will stocks get appropriately valued in the market?” “Will traders drive their prices into bubbles? And less concerned about values?” A lot of questions about the influence of index investing and traders and what that’s going to do to some of the efficiency of the markets. And then, “What’s the right portfolio mix through various stages of retirement?” That’s a really good question. “The best options that are not pegged to the US currency and bond debt markets?” which is where interest rates are and everybody’s concerned about the fiscal stimulus packages. It’s a prudent question to ask.

Another important question was, “A recent well-publicized study suggested that retirees should actually invest more aggressively as they get older in retirement in order to help insure that they won’t outlive their portfolios. What’s your take on the mix of stocks, bonds, as we approach retirement?” That’s a really good question and I’m familiar with that study that basically argues that you should start very conservatively when you first retire because those are crucial years of you can’t afford huge mistakes on the front-end of retirement in terms of market losses and then you slowly increase the percentage of stocks as you age because your timeline in terms of how long you need to have the money starts to get lower and lower. I’m familiar with that study so we’ll definitely answer that. We’ll answer all of them!

Another question was, “What’s the optimal asset mix through various stages of pre- and post-retirement?”

These are all the questions that you had about planning well and investing wisely, and it sounds like I’m talking to a bunch of dudes – which is great with me, I’m fine with that. It’d be nice to have some ladies in the house. I’m talking to a bunch of guys that have been married for a long period of time, that have two to three children, and they want to spend time with their wife and their families. What a great party we’re having here.

Now we know a little bit about each other. You obviously know me because I talk to you every week, and now I know a little bit more about you so I can tailor this podcast to serve you. So, I’m going to answer in future episodes every one of the questions in this survey.

But my ask from you – the ask that I told you that I was going to ask you about – is, “What is the one thing that you’re struggling with as you plan well and invest wisely for retirement? What’s the one thing you want to learn about that?” Send me an email. You can go to rogerwhitney.com. Click on You Ask, I ANSWER. Tell me. You don’t have to give me your name or anything. It will ask you for the email and that will get you into the Retirement Answer Library. But send me an email. Go to rogerwhitney.com, fill out You Ask, I ANSWER, and tell me what your number one struggle is or what your number one question is about retirement planning, and I’ll take those and I’ll use those to create future episodes to answer the things that you guys actually care about because that’s the whole purpose here.

I want to thank you so much for joining me today. It is an honor to be able to serve you on this podcast.

Until next week, this is Roger Whitney hoping that you plan well and invest wisely.