How to Use Your Heart and Head to Hack Your Personal Finance


You need to recognize that your desire to show people how smart you are, or to impress people with your wealth, or prove how quickly you can make money, which causes you to do insufficient research, can lead you to these bad decisions.

Accept that you are flawed, he says, and you will have a chance of doing the right thing. “Do not aim to be coldly rational when making financial decisions,” he says. “Aim to be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it for the long run.”

Mr. Housel offers two examples of reasonableness: Try to defer gratification, recognizing that wealth is created by not spending today so that you have more options in the future. And try to maintain a long horizon.

“Time is the most powerful force in investing,” he says. “It makes little things grow big and big mistakes fade away.”

As much as I like this book, it’s not perfect.

For example, Mr. Housel writes, “How you behave is more important than what you know.” While it’s certainly true that your behavior can undermine the best financial plans, it’s also true that if you know nothing about finance and make your own investment decisions anyway, you are leaving things up to chance.

I have the same problem with his claim that “an investor can be wrong half the time, and still make a fortune.” In one sense, that’s true. Here’s an interpretation that puts the comment in the best light. Say you buy 10 individual stocks that are all priced at $20 a share. If four rise 10 percent over the year, five fall 10 percent, and one increases by a factor of 20, you are a big winner.

But taking Mr. Housel’s comment literally could be dangerous. It could lead readers to believe they can beat the market by being right just half the time. That’s unlikely.



Source link

Recent articles

Russian budget proposal cuts near-term subsidy for CR929 | News

Russia’s government is proposing heavily reduced near-term budget allocations for the joint Russian-Chinese long-haul aircraft project, as part of a broad review of...

Hasbro’s Mando Mondays Kicks Off With New The Mandalorian Figures

Mando Mondays – an event that debuts products inspired by The Mandalorian – kicks off today! We informed you about some awesome pre-orders a little...

NEWS: Disney World’s Entrance Sign is Getting a Makeover!

As you might have noticed, we’ve been keeping an...

NASA’s OSIRIS-REx Is Overflowing with Asteroid Samples

NASA’s first-ever asteroid-sampling operation apparently went a little too well. The agency’s OSIRIS-REx probe snagged so much dirt and rock from the surface of...

There’s Now a Pinterest Widget for iOS 14

Image: PinterestI have learned that a Pinterest widget will roll out wide on iOS 14 today, and reader, I am elated.I’ve...

Leave a reply

Please enter your comment!
Please enter your name here