Jason Hull
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  • Market timers underperform their index counterparts by 35.8%
  • Mention auto-escalation
  • Sit or stand still with your eyes open.Take a deep breath.Count to five.Now clap your hands.Change really is that easy. It’s a matter of choice. You all have the power to choose.

Transcript

  • 1. How Monkey Brain Chatters in Your Ear - or – The Five Most Common Psychological Biases That Affect Your Money Jason Hull Hull Financial Planning http://www.hullfinancialplanning.com http://www.hullfinancialplanning.com
  • 2. We Think Winning With Money Has to Do With This http://www.hullfinancialplanning.com
  • 3. How Many Times Have You Said This? • “I just have to find the right answer…” • “There has to be a shortcut…” • “There’s someone out there with a secret that I just don’t know about…” http://www.hullfinancialplanning.com
  • 4. If Education is the Answer, Then Why http://www.hullfinancialplanning.com
  • 5. …or… http://www.hullfinancialplanning.com
  • 6. …or…??? http://www.hullfinancialplanning.com
  • 7. Personal Finance Isn’t Just About Math • Math is immutable • But behavior isn’t http://www.hullfinancialplanning.com
  • 8. My Story • When I was a lieutenant in Germany, I’d put $1,000 in a savings account and $300 in an IRA every month (limits were lower back then) http://www.hullfinancialplanning.com
  • 9. My Story • Then, I’d put $800 on the credit card… http://www.hullfinancialplanning.com
  • 10. My Story • AND withdraw $500 from savings http://www.hullfinancialplanning.com
  • 11. My Story What I told myself • I’m a saver! • I’m being responsible! • That credit card debt isn’t bad. • It’s OK to spend some because you’re saving. The truth was • I was racking up debt • I was putting money in savings while carrying a credit card balance http://www.hullfinancialplanning.com
  • 12. What Caused This? http://www.hullfinancialplanning.com
  • 13. Who is Monkey Brain? • It’s your limbic system http://www.hullfinancialplanning.com
  • 14. What Does Monkey Brain Love? http://www.hullfinancialplanning.com
  • 15. A Little Story • 25 year old couple http://www.hullfinancialplanning.com
  • 16. A Little Story • Earns median family income: $51,017 • Will work for 40 years and retire • Assuming – 7.5% annual return – 3% inflation with employer match of 50% up to 6% in 401k contribution – $4k/month in Social Security @ age 66 • Needs to save 12.16% annually • What could go wrong? http://www.hullfinancialplanning.com
  • 17. Anchoring Bias • Employer says “We’ll match 401k contributions up to 3%!” - instead of “We’ll match 50% 401k contributions up to 6%” • 3% reduction in savings because of anchor  19.8% retirement target shortfall http://www.hullfinancialplanning.com
  • 18. Status Quo Bias • Many investors never change their equity allocation as they age http://www.hullfinancialplanning.com
  • 19. Dunning-Kruger Effect • When we think we’re better than everyone else, we try to time the market • Loss aversion: we’ll risk more to get back to breakeven http://www.hullfinancialplanning.com
  • 20. Hedonic Adaptation • Allowing lifestyle rather than savings to expand http://www.hullfinancialplanning.com
  • 21. Hyperbolic Discounting • We treat our future selves as strangers and discount future pain and pleasure (1) http://blogs.marketwatch.com/encore/2013/06/05/more-retire-with-mortgages-credit-card-debt/ (2) http://money.usnews.com/money/retirement/articles/2013/05/13/the-baby-boomer-retirement-crunch-begins http://www.hullfinancialplanning.com
  • 22. Bonus Trait of Monkey Brain • He wants to know who the people are in his neighborhood – This – Is better than this You make $50,000 per year and your neighbors make $40,000 per year You make $60,000 per year and your neighbors make $70,000 per year http://www.hullfinancialplanning.com
  • 23. What’s the One Asset You Have That Can Never Grow? www.hullfinancialplanning.com
  • 24. It’s Not This http://www.hullfinancialplanning.com
  • 25. It’s This http://www.hullfinancialplanning.com
  • 26. The Winning With Money Course Lesson 1: Answering the Question Why Lesson 2: Monkey Brain’s Common Weapons Lesson 3: Money Comes and Money Goes Lesson 4: Cracking the Whip on Your Money Lesson 5: Christmas Comes Once a Year Lesson 6: A Contract on Your Life Lesson 7: What if You Can’t Work (and Not Just From Lack of Coffee)? Lesson 8: Don’t Pay an Arm and a Leg to Keep Your Arm and Leg Lesson 9: Long Term Care Lesson 16: Making Your Insurance House Your Home and Not Lesson 10: Investing a Money Pit Doesn’t Mean Playing Lesson 17: Papers, please! the Markets The important documents Lesson 11: An IRA Isn’t in your life an Account Lesson 18: Getting People Lesson 12: Retirement – Who Live in Houses to Pay Paying for Knee-High You Socks and Hammocks Lesson 19: Starting Your Lesson 13: How Much Own Gig and Managing Should I Be Saving? the Band Lesson 14: Social Security Lesson 20: Tying It All – Neither Social nor Together Secure, But It’s Something Lesson 15: Kids – Raising Them, Feeding Them, and Educating Them http://www.hullfinancialplanning.com
  • 27. The Winning With Money Course Worksheets Lesson 4: Measuring how well you stick to your budget Lesson 10: How often you should invest Lesson 12: Calculating your retirement expenses and your “target number” Lesson 13: How much to save each month Lesson 14: Social Security contributions and taxes Lesson 15: How much will your children cost you Lesson 15: How much to save for the kids’ college education Lesson 18: Calculating the profitability of potential rental properties http://www.hullfinancialplanning.com
  • 28. Winning With Money Course Two Options http://www.hullfinancialplanning.com
  • 29. But Wait! There’s More! http://www.hullfinancialplanning.com
  • 30. A Coupon Just for FINCON Attendees • $100 off of either option • Good through October 20, 2013 • MUST use this link: http://bit.ly/1515Moy http://www.hullfinancialplanning.com
  • 31. Not Ready Yet? • Subscribe to my 52 week Financial Game Plan • At the end of the course, you’ll receive another coupon for $100 off good for 30 days • You will also receive a free e-book “Four Places Your Monkey Brain Should Never Live” http://www.hullfinancialplanning.com/fourplaces-your-monkey-brain-should-never-live/ http://www.hullfinancialplanning.com
  • 32. Disclaimers • THE INFORMATION PROVIDED IN THIS PRESENTATION SHOULD NOT BE CONSIDERED INVESTMENT ADVICE OR A RECOMMENDATION TO PURCHASE, HOLD OR SELL ANY SECURITIES • You may not receive returns explained in this presentation – Returns projected using a proprietary Monte Carlo simulation based on historical S&P 500 and U.S. 10 year Treasury bonds • Certain statements in this Web Site may constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors that may cause the actual returns and values of the Notes to be materially different from any future returns or values expressed or implied by such forward-looking statements. http://www.hullfinancialplanning.com
  • 33. Thanks! www.hullfinancialplanning.com
  • 34. How to Reach Me • http://www.hullfinancialplanning.com • jhull@hullfinancialplanning.com • (817)476-0584 http://www.hullfinancialplanning.com