Uncommon Sense – Mental Mistakes To Avoid


Common sense is not quite as common as you might think, especially when it comes to your finances. Let’s talk about three areas where people tend to do the opposite of what is in their own best interest, and what you can do to avoid those missteps in the future.

Transcript

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John Stillman: Welcome once again to Wright Money Tips with Isaac Wright, the president of Financial Dynamics and Associates. You can find us online at wrightmoneytips.com. You can reach out by phone at 804-777-9999. You can drive up to the office, knock on the door and say hey, I'd like some help. Actually don't knock. Just walk in would really be the way to do it. It would probably be weird if somebody walked up to the office door and knocked. But if you need help, reach out to us one way or the other.

John: Hey, we're talking today about uncommon sense. I think it was Voltaire who said common sense is not all that common. He probably said it a lot more eloquently than that, but that was the essence of what Voltaire said. So we're talking today about mental mistakes to avoid.

Isaac Wright: Beautiful.

John: Uncommon sense, Isaac. It sounds like common sense to say buy low and sell high. And yet when we look at people's behavior, that's not what they do.

Isaac: Yeah. I think simply put, the problem is some of the things that we kind of know in our mind as the right way to handle a situation, when you start involving emotion, you may very well make the exact opposite decision. And so when you start looking at the stock market and looking at your investments and if they take a hit, gut reaction may mean to get that money out and make sure you have what you have. But unfortunately this means quite frankly, that probably you don't have somebody helping you along the lines of keeping you on track with your financial plan to begin with or you may not have one at all. I find that the ones that have a plan typically avoid what I call the buy low and sell high because their are emotions are in check.

John: It's one of those things that everybody agrees with on paper. And when you say buy low and sell high, everybody in the room nods along with you in agreement. But when you look at the way people behave, they're not following that very common sense advice.

John: All right. Uncommon sense number two, don't pay more taxes than you have to. Well who wants to pay more taxes than they have to? But a lot of people are Isaac.

Isaac: Yeah. A lot of people do this and I think what's going on here is they don't understand where their taxes even fall. So they just give their W2s and 1099s and all of the money that they make for the year to the accountant and they may think that the accountant is going to turn around and give them an answer about hey, how to save money in taxes. And let me make this clear. Some do, but very few. Most of them are so busy they only have time to turn around and basically print out your report of whether or not you either owe more money or whether you get a refund. And what we're talking about is just having a plan that understands, hey, is there a way to alleviate some of the taxes based on where I'm pulling money from?

Isaac: So even though it makes common sense to pay, let's try not to pay more in taxes than we have to, the problem is this. Is we're not putting ourselves in a place be able to get advice on how to do exactly that. And that's one of the things we want to bring up to your attention because we kind of end up through the end of the year here into next year, again, we're in a very favorable tax code. These are things that you need to pay attention to. If you have any questions about some of these things, by the way, again, reach out, give us a call, 804-777-999 locally here in Richmond, Virginia. We serve pretty much the entire Richmond area and we even have people come out and visit us from quite farther than Richmond.

Isaac: So it's just good common sense to follow through on what we just covered here when it comes to not paying more in taxes than you have to.

John: Another thing that should be common sense, but apparently for whatever reason is a little bit uncommon, Isaac. is the idea that you shouldn't put all your eggs in one basket. Everybody learned that when they were a kid and they were out there walking around with a basket gathering eggs. I guess maybe this is from centuries past, I don't know. But don't put all your eggs in one basket is a proverb that anybody understands. But again, when we look at people's behavior from a financial perspective, there's usually a lot of eggs in one basket.

Isaac: I think a good way to kind of personify this is people when they have their 401k statements, their investment statements, and they see that pie chart and it shows 12 different colors, they think they are invested in a bunch of different things. They're very well diversified and the problem is they may think they own a bunch of different stocks or mutual funds, but inside of all of those mutual funds, they could all be owning basically the same stocks. And so they're a lot more concentrated, in a way and in essence they are putting more of all their eggs in one basket without realizing it.

Isaac: And then on the vice a versa side, we have people that just simply have all their money sitting in bank CDs and savings and checking. So it can fall on both sides of the fence. And I think you have to have someone to help you make some common sense of whether or not you're balanced appropriately and if there's any room for improvement. So I think that's a great one John, especially when it comes to people's money.

John: The last one again should be common sense, but often isn't, is the idea that market timing is virtually impossible. And again, we say that and everybody says, oh yeah, yeah, you can't time the stock market. But those same people then say, oh, a crash is coming. Let me get out right now. Or oh, this is a good time to buy. And they ended up being wrong.

Isaac: Well, and I think today the Internet and the media kind of inspires you to make market timing decisions. You watch the CNBC Fast money channel and you know, all of these different shows that say, buy, buy, buy. Well, I mean this is all great and good for their ratings, but as that great and good for your portfolio? So again, the answer here is keeping your emotions in check and really having the ability to put a plan in place and stick to it. That's one of the main that I think is a great value proposition here at Financial Dynamics is doesn't mean that you don't have money in the market, but we're not going to sit here and try to help you time every individual investment because you're going to be on the road to ruin. Because if you're going to time the market, you have to be right twice. You have to be right getting in and getting out.

Isaac: And if everybody could do that, or if anybody could really do that, you would see a whole lot more people doing that exact thing. And if you listen to most money managers, portfolio managers, listen, if you have a little bit of money you want to speculate on, that's great. But don't use market timing as a strategy towards your entire portfolio because it's just too difficult to be right longterm.

Isaac: So all of these things here are what we call common sense mistakes or common sense thoughts that are all too uncommon sometimes when you think about how you're actually taking care of your investments and your financial plan. So we're here to help on all of these, but if you have any questions about any of the things that we've covered today, just reach out. Give us a call. 804-777-999. You can even text us if you text the word tips to 777-9999, we'll reach back out to you and try to have a few minutes to talk to you about what's going on.

Isaac: So we're here to help and John again, a great, kind of a great little maybe recap of things that we see and we know and maybe share them with others will help.

John: Certainly we try to share as much common sense on the program as we can and hope some of that seeps in to you. So thanks for joining us on Wright Money Tips. Again, if you'd like to reach out that number to call is 804-777-9999. And we'll talk with you again very soon. Have a good day.

Announcer: Information is for illustrative purposes only and does not constitute tax, investment or legal advice. Always consult with a qualified investment, legal or tax professional before taking any action. Investment advisory services offered through Global Financial Private Capital, LLC.

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