You know the old saying about a picture being worth a thousand words? In the world of finance, you can probably make that ten thousand! The New York Times columnist, author, and financial planner Carl Richards has made a career out of exposing and analysing what he calls the “behaviour gap” – the gap between what you should do with your money and what you actually do.
Richards has a knack for turning key investment principles into simple sketches to illustrate how improving your behaviour can help you reach your financial goals. Here are a few of our favourite sketches that we use consistently with our clients.
Sketch 1 – There are a limited number of things you can control, Richards says, and you don’t have power over everything that matters. It’s the important things you can control that should occupy your efforts.
Sketch 2 – For those who lack the necessary time, knowledge and discipline to implement an investment strategy, a good adviser should be the thing between YOU and the BIG MISTAKE.
Sketch 3 – Years of research has shown that the average investor earns less (often much less) than the assets they are invested in. This “Behavior Gap” is not simply about investors buying and selling at the wrong time; it is the psychological traps, triggers and misconceptions that cause investors to act irrationally.
Sketch 4 – Your portfolio design is one of the things that matter. “A well-designed portfolio can be the difference between good investment outcomes and disappointment,” Richards wrote in The Times in 2013. The elements, like those shown below, should create one cohesive unit.
Sketch 5 – The path between you and your financial goals isn’t a straight line.
Sketch 6 – If you stay focused on achieving your own financial goals instead of being side-tracked by what other people most value, you’ll get there.
To find out more about how any of these measures may be of assistance in your individual circumstances, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.
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