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Welcome to personal finance for
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long-term investors, where we believe
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Benjamin Franklin's advice that an
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investment in knowledge pays the best
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interest both in finances and in your
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life. Every episode teaches you personal
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finance and long-term investing in
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simple terms. Now, here's your host,
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Jesse Kramer. Welcome to Personal
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Finance for Long-Term Investors, episode
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116. My name is Jesse Kramer. By day, I
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work at a fiduciary wealth management
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firm helping clients nationwide. You can
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learn more at bestinterest.blog
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back/work. The link is in the show
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notes. And by night, I write the
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bestinterest blog and I host this
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podcast. I help busy professionals and
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retirees avoid mistakes and grow their
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wealth by simplifying their investing,
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taxes, and retirement. Later today, I'll
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be joined by Hannah Horvath. Hannah is a
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certified financial planner. She's the
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managing editor at Bank Rate, and she's
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the author of Your Brain on Money, a
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newsletter she writes. We're going to
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talk today, Hannah and I, about well,
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your brains and money. You know, the
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psychology, financial psychology, and
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some similar related topics. But before
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Hannah joins us, we have some customary
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preamble, some thoughts from yours
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truly. And of course, we start today
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with a review of the week from Jern 89,
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who writes in and says, "Great
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perspective on personal finance. I came
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across Jesse on the Stacking Benjamin
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show, and I thought his views were
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engaging enough to give his podcast a
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try, and I was not disappointed. Jesse
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has a talent for explaining things in a
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way that is both simple and relatable,
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but that also adds a level of detail
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that goes just a little beyond what I
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hear from the others in this space. His
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explanations of his thought process
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really add the why on top of the what.
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His AMA episodes are worldclass. Keep it
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up. Well, Jay Cern, thank you very much
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for the kind words. I'd be happy to send
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you a Supersoft podcast t-shirt. You can
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drop me an email to
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and I will get you hooked up. And
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listeners, if you have a question, a
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concern, or feedback that I can answer
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or address, especially for a future ask
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me anything episode, send those
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questions to my email address,
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jessebinest.blog.
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And now, before Hannah tells us more
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about our brains on money today, I
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wanted to share from three money
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psychology articles I've written over
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the past few years. The first of those
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articles is called Chasing the Fad. I
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started an article. I posted a picture
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of a specific Google uh data, Google
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search term that you know you can see um
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how often people are searching various
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things on Google. And this particular
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term, no one had ever searched for it
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basically until uh 2017. And then it saw
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a massive spike becoming one of the most
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searched for terms over a very short
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period of time. Since then, it's
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basically disappeared. And and some of
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you might not even remember this. It's
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been 8 years or so. It was plastic. It
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was a toy. It spun around in circles and
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little kids were playing with them. It
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was fidget spinners. I don't know if you
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remember fidget spinners. Definitely a a
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fad of the day for young kids,
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pre-teenagers probably in 2017. But by
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proxy, their parents and the rest of us
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found out about these things too. You
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know, a very simple toy, this
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three-lobed kind of plastic structure
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that sat on a ball bearing and it would
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just spin and spin and spin and spin.
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And it seemed like every kid had at
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least a couple uh in their backpacks in
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2017. But why, right? Why did fidget
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spinners go viral? Why does anything go
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viral? I suppose where do these school
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fads come from? And as a bystander, and
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I certainly found myself as a bystander
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for fidget spinners, they seem to crop
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up out of nowhere. I looked at them and
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thought like, that's so stupid. What a
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dumb toy. But when you ask the experts,
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well, they to be honest with you, they
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they somewhat agree. Behavioral engineer
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near IEL wrote, "If you take a product
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like the fidget spinner, there's no good
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reason why people should like them other
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than the fact that they see other people
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liking them." and that gives them value.
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So once a few kids start bringing fidget
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spinners into class, other kids want to
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know what these things are. Even though
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they are just a piece of cheap plastic,
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the fact that some kids are getting
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really into them and won't let other
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kids play with them, it increases the
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value of the product through mimetic
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desire. So that term right there,
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mimedic desire. Social scientist Rene
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Gerard, I think he looks French to me.
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It was his magnumopus mimemetic desire,
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which states that man is the creature
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who does not know what to desire and he
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turns to others in order to make up his
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mind. We desire what others desire
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because we imitate their desires. It's
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follow the leader. It's copycat. It's
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Simon says. It's go with the crowd. It's
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this innate primal jealousy. And we've
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all succumbed to it at some point in our
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life. Most likely we've been unwittingly
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influenced by others. Humans like stuff
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because we see other people liking that
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stuff, too. And school fads are a
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textbook example of mimemetic desire.
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Any parents who have asked, "Why in the
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world is my kid doing insert irrational
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behavior here?" They can likely find
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their answer somewhere within mimemetic
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desire. Anyone looking back on their
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yearbook wondering, "What the hell was I
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thinking in that yearbook photo?" Well,
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you were probably filled with mimemetic
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desire and some teenage angst or
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something like that. And social media
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only compounds the issue. As as Thrive
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magazine wrote on school fads, social
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media platforms provide endless
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opportunities for young people to
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exchange ideas, to share images and
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links, and overall employs
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whatever the sought after craze might be
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at this time. You know, if all the cool
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girls are sharing makeup videos, then
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you want to start wearing makeup. If the
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cool guys are sharing sports highlights,
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then you play sports. It's not rocket
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science. It's just human nature. And now
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each social media app seems to have its
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own fads, too. Tik Tok has dance memes.
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Instagram has reals. Twitter has
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threads. LinkedIn has the all too
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personal confessions camouflaged as
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humility. Uh Facebook has I'm not sure,
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anger, maybe. Uh and of course, all
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these fads have been socially engineered
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by the social media platforms to capture
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our attention and that of our children
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and that of our parents and our friends
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and our co-workers, etc. We're all being
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captured by social media. And if you
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haven't watched The Social Dilemma, it
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might be worth your time. And I fully
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confess to falling victim to some of
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these social media fads over time, both
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as a content creator and as a consumer.
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I thought, well, if everyone is enjoying
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it, why don't I try it? Why don't I
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spread the best interest and personal
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finance for long-term investors via
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social media? But after months of social
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media content creation, this is many
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years ago, I began to realize many, many
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problems. And the two most important are
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one, I didn't really enjoy it, and two,
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it was a massive time suck. And when
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multiplied by millions of similar users,
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what does that time and effort and
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attention obtain? Well, we get thousands
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of computer engineers and engaging
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creators finding ever more efficient
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methods of hacking their followers
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brains to sell them stuff they probably
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don't need. Now, is that a fad that I
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want to follow? Not really. But I feel
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completely different about writing blog
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posts and and producing podcast
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episodes. I love writing. I love
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explaining. I love educating. I like
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talking into this microphone. I started
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with really no audience, but I kept on
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doing it because it was fun and I was
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learning and I was growing. And any
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influence I garnered from these projects
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is not really contrived. I'd say it's
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pretty genuine. Have I sold people stuff
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that they don't need? I really don't
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think so. I work professionally with
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with some of the audience members as my
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financial planning clients. That's
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fantastic. To me, that's an affirmation
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of trust. It's an honor. And and many of
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you out there listening, you're just
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tuning in to get some helpful knowledge
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all for free. That's pretty cool, too. I
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don't know if I'm a good enough writer
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or or podcaster for big-time fame and
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fortune, but I'm good enough to educate
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and entertain my audience, and that's
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enough for me. I don't have to be a a
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world-class videographer or a sexy Tik
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Tok dancer or the most uh charismatic
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guy on on LinkedIn or something like
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that. As Uncle Warren Buffett famously
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said, investing is a no called strike
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game, right? We can just sit here with a
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bat on our shoulders and they won't call
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strikes against us and we don't have the
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threat of getting struck out facing us
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in the future. And much of life is
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exactly the same way. You don't have to
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swing at opportunities simply because
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they are within reach. You can let them
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pass because more opportunities are on
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the way. You can wait for the sweetest
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pitch to pass by and then smack your own
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version of a home run. You don't have to
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follow every single fad. And investing
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is much the same. A small crowd starts a
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trend, finds some golden opportunity. I
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mean, literally, you can think of the
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California Gold Rush if you want to
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here. And then a large crowd follows
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them. And what the wise man does in the
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beginning, the fool does in the end.
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That's a very famous kind of investing
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maxim. What the wise man does in the
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beginning, essentially starting a trend,
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the fool does in the end, ending a
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trend. It's the same dysfunction that
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creates school fads, but it's manifested
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in a different form. Our brains are
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susceptible to the madness of crowds.
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It's true in investing. It's true in
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social media. It's true, you know, in
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the schoolyard. The late 1990s.com
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bubble is a famous famous investing fad.
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Any company could market itself as an
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internet company and then seemingly 10x
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its valuation overnight. As of October
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1999, which is before the dot bubble had
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burst, the 199 so-called internet stocks
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at the time had a total market cap of
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$450 billion, had a total prior year
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sales of only $21 billion, and had a
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total prior year's profits of negative
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$6.2 billion. So that's a price to sales
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ratio of 21, which is very, very high.
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and a price to earnings ratio
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essentially of infinity because there
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weren't any earnings. Now, in the short
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run, losing money like that might be
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okay for some companies. I mean, many
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companies do so in their early years,
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but in the long run, reality always
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wins. And the reality of losing money is
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that it causes businesses to fail. One
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infamous banking quote from 1999, that
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same year, is that companies come in
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here all the time and say, "The last
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thing I want to do is be profitable
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because then I wouldn't get the
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valuation of an internet company."
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That's right. Companies would avoid
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profit because that's what the smart
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money did. In other words, the fad was
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to call yourself an internet company,
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whether you were or not, to
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intentionally try to lose money, which
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could be considered a sign of rapid
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growth at the time, or more
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realistically was probably a sign of
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impending doom. The third step was then
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to get evaluated as if rapid growth was
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inevitable, which is far from the truth.
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It doesn't happen to every single
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company. And then fourth hopefully would
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be to profit immensely at least in the
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short term because more investors are
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attracted to your pre-profit not really
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growing but should be rapidly growing
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company and many investors bought that
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story hookline and sinker and as their
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neighbors got rich more investors piled
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in. That is mimetic desire. We are wired
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to do what the popular or successful or
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rich or influential people do. And if
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the story seems to make sense and you
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know the story at the time was the
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internet is taking over the world better
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hop on before it's too late and by the
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way look at all your neighbors who have
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already gotten rich off of this trend.
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If that is the story and if we see the
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evidence before us and if at least on
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the surface somehow it makes sense then
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our poor monkey brains are just turned
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into mush and we blindly follow. Right?
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JP Morgan the JP Morgan famously said
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nothing so undermines your financial
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judgment as the sight of your neighbor
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getting rich. It's happened before. It
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happened to us plenty of times as kids.
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We might even see it happening to our
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children right now. It's happened to
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generations and generations of investors
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and it will surely happen to us again.
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So, as they say, for example, in uh the
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Lion King, what is that? The hyena
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scene. Be prepared. I think that's when
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Scar is taking over. Be prepared. Uh
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anyway, but remember this, fadeds come
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and go whether we follow them or not.
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And you never have to follow them. And
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that's perhaps the greatest lesson I've
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learned from, say, studying Warren
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Buffett and Charlie Mer. You don't have
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to swing at pitches you don't like. It's
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the same as your parents saying, "Well,
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if all your buddies jumped off a bridge,
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would you follow them?" Uh, no. I guess
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I wouldn't. I could ignore mimemetic
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desire in some cases. And and maybe the
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lesson there is you can ignore mimetic
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desire in all cases. And if you need
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something to pass the time, you can go
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play with a fidget spinner instead.
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We're going to go now from uh the 2017
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fidget spinner days. We're going to back
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up a few millennia to uh the Greeks.
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We're going to talk about the Seriniacs.
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The Seriniacs were an interesting bunch.
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uh their school of philosophy founded in
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the city of Sirene, hence the name
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Seriniacs, preached these two things
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called the skeptical epistemology and
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sensualist hedenism. Now, what is
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skeptical epistemology? I don't know,
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but Wikipedia tells me it's about
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knowing what's true, knowing what's
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real, and the theory of knowledge
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itself. Seems pretty philosophical to
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me. But I'm more interested in,
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especially in today's podcast episode,
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I'm more interested in this idea of
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sensualist hedenism, which deduces a
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single universal aim for all people,
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which is pleasure. That is the single
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aim. Physical pleasure is best, said the
00:12:25
Streniniac. So, sweet foods, a soft
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kiss, cool water on a hot day. But
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pleasure can also take a uh brain only
00:12:31
form. Something like contentment. This
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emotion we feel, contentment, altruism,
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friendship, and justice are all good,
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pleasurable feelings worth pursuing. But
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pleasures, they said, are only
00:12:42
beneficial in so far as they don't bring
00:12:45
pain with them. Pain, after all, is the
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antithesis of pleasure. And Sereniac
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leader Aristus once wrote, "The best
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thing is to possess pleasures without
00:12:53
being their slave, not to be devoid of
00:12:56
pleasures." In other words, his motto, I
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suppose, or his his order of operations
00:13:00
was one, seek out pleasure, but two,
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don't let pleasures or pleasure seeking
00:13:05
capture you since being captive is a
00:13:07
painful thing. And then three, don't
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intentionally avoid pleasure for the
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fear of pain. So, our brains are
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hardwired for pleasure- seeeking. And
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the cerics were on to something. We say
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yes to things in our life that feel
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good, especially if they're easy. And we
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say no to the things in our life that
00:13:23
are painful, especially if they're hard.
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It's probably why we, you know, say,
00:13:26
"Hey, pass the donuts, please." But do
00:13:28
we actually feel contentment from
00:13:30
pleasure seeking? So, this whole article
00:13:33
was inspired basically 3 years ago,
00:13:35
exactly August of I'm recording this as
00:13:38
in in August of 2025. I wrote it in
00:13:40
August of 2022 because I was on a
00:13:43
camping trip in the wonderful Aderandic
00:13:45
Mountains. And as a few of us were
00:13:46
sitting close to a campfire on a really
00:13:48
cold night, a friend of the blog, Nikki,
00:13:50
she leaned over and she asked us, "Hey,
00:13:53
do you guys ever struggle with
00:13:54
contentment? You know, the feeling that
00:13:56
what you have, like, is it enough?" And
00:13:59
in my mind, and out loud too, I just
00:14:01
thought, "Yes, yes, yes, absolutely. We
00:14:03
absolutely do." And I don't think
00:14:05
necessarily that hedonism is the answer
00:14:07
here, just to be clear. But my first
00:14:09
reaction to Nikki's question is that
00:14:11
yeah, I feel FOMO or the fear of missing
00:14:13
out because simply there isn't enough
00:14:15
time to do everything that I want to do.
00:14:17
Our 24 hours in a day aren't enough to
00:14:19
satiate the feeling that I could and
00:14:22
maybe should be doing something more.
00:14:24
And that's despite the fact that I'm in
00:14:26
a loving marriage uh with a great career
00:14:29
which I absolutely love this fun project
00:14:31
I I run on the side that write this
00:14:33
podcast the blog which I love. I've got
00:14:35
a beautiful daughter and a happy dog and
00:14:37
a wonderful wife and great friends. I
00:14:40
have nothing to complain about. My life
00:14:41
is great, but I still pine for more. And
00:14:45
why? I don't know why. Why is there this
00:14:47
kind of greedy goblin in my head who's
00:14:50
got an appetite for goblin up life? And
00:14:52
now to partially answer that question, I
00:14:54
suppose it helps to jump from the
00:14:56
ancient Greeks to the original Buddhists
00:14:58
further east. According to this is a
00:15:00
quote from a PBS documentary about
00:15:02
Buddhism. In Buddhism, desire and
00:15:04
ignorance lie at the root of suffering.
00:15:07
By desire, Buddhists refer to craving
00:15:09
pleasure, craving material goods and
00:15:11
immortality, all of which are wants that
00:15:14
can never be satisfied. All of which are
00:15:16
wants that can never be satisfied. As a
00:15:18
result, desiring them can only bring
00:15:20
about suffering. Ignorance in comparison
00:15:23
relates to not seeing the world as it
00:15:25
actually is. So that's the other root of
00:15:26
suffering is ignorance. But the main one
00:15:28
here that that desire for more
00:15:30
especially for desires that can never be
00:15:32
satisfied that is a root of suffering
00:15:35
and that brings us to the so-called
00:15:37
hydonic treadmill right hedenism the
00:15:39
hydonic treadmill and the hedonic
00:15:40
treadmill is a pillar of kind of where
00:15:43
frugalism and the fire movement and
00:15:45
financial planning personal finance
00:15:46
where they all kind of meet and where it
00:15:48
all interacts with how we think about
00:15:50
the world and our brains and our monkey
00:15:51
psychology that's where the hyonic
00:15:53
treadmill comes in it's also called
00:15:55
hyonic adaptation and it describes the
00:15:57
the tendency of humans to seek pleasure
00:15:59
but then to adapt to that pleasure
00:16:01
thereby maintaining a stable level of
00:16:04
happiness. Right? You really want to get
00:16:05
new shoes and you get the new shoes and
00:16:07
it makes you happy but then you get used
00:16:09
to the shoes and your happiness resets
00:16:12
to prior levels. So even though you have
00:16:14
the thing that you thought you wanted
00:16:15
and you had the thing that made you
00:16:17
happy temporarily, it really was just a
00:16:19
temporary happiness. And so while a real
00:16:21
treadmill you're you're walking on the
00:16:23
real treadmill and it's wearing your
00:16:24
shoes down, the hydonic treadmill wears
00:16:26
down the pleasure that they bring. Now
00:16:29
substitute everything else in life for
00:16:31
the shoes that I just talked about. A
00:16:33
new house, a new car, a new hobby. If
00:16:35
you're searching for happiness in this
00:16:36
manner, it's like running on a hydonic
00:16:39
treadmill. You can try and try and try,
00:16:41
but you won't actually get there. You'll
00:16:43
be working hard, but essentially you'll
00:16:45
be standing still. The new house might
00:16:46
feel good, but then you'll get used to
00:16:48
it. The new car might feel good
00:16:50
momentarily, but then you'll get used to
00:16:51
it over and over again. We can spend
00:16:53
money and we can spend our energy and we
00:16:55
can spend our time in life pursuing more
00:16:58
thinking it'll make us happy, but you
00:17:00
might just be running on that hydonic
00:17:02
treadmill. And yes, it becomes a recipe
00:17:05
for financial hardship because you're
00:17:07
not exactly just running in place per
00:17:09
se. You'll be spending more and more and
00:17:11
more, but you won't necessarily be
00:17:13
feeling any better for it. And that's a
00:17:15
recipe for financial hardship. So when I
00:17:18
think about this, I I now am branching
00:17:19
over to the topic of financial
00:17:21
contentment. You know, is my salary
00:17:22
enough? Is my car enough? Is my house
00:17:24
enough? These are all legitimate
00:17:26
questions that most of us ask ourselves
00:17:28
at one time or another. But I think it's
00:17:30
important to pause and then ask, why are
00:17:33
we asking in the first place? So, as an
00:17:35
example, let's look at the house
00:17:36
question. Are you worried that your
00:17:38
family is simply outgrowing the space
00:17:40
that you have? Like is this a logistics
00:17:41
question? Because if so, it's probably
00:17:43
just fine. But the alternative is does
00:17:46
your house feel small compared to that
00:17:48
of your friends or your neighbors or
00:17:50
your co-workers. Right? The first
00:17:52
question has a tangible endpoint. The
00:17:54
solution is within reach. You can buy a
00:17:55
house to meet your family's needs. And
00:17:57
unless your family is growing
00:17:59
infinitely, maybe you're that kind of a
00:18:00
hedenist. Unless your family is growing
00:18:02
infinitely, you can find a house to
00:18:05
address your concerns. The question
00:18:06
isn't a treadmill, but a well-defined
00:18:08
trail from point A to point B. It's less
00:18:11
of a want and it's more of a just a
00:18:14
need. We need a bigger house to to
00:18:15
support the family. But the second
00:18:17
question, does your house feel small
00:18:19
compared to your friends or neighbors or
00:18:21
co-workers? I'm not sure that one has a
00:18:23
tangible endpoint. You know, much like
00:18:24
that saying, there's always a bigger
00:18:26
fish, there's also always a bigger
00:18:28
house. It's a wanting feeling. It's not
00:18:30
necessarily a needing feeling. And if
00:18:32
you're in this position where you're
00:18:34
comparing your houses to the others and
00:18:35
you're keeping up to the Joneses, I only
00:18:37
see two viable end points to that
00:18:39
thought process. The first end point is
00:18:41
that you build the best single house in
00:18:44
the entire world. Or the second end
00:18:46
point is that you constantly and
00:18:48
consistently feel inferior to other
00:18:50
houses forever. So you'll always be
00:18:53
inferior, right? You're just a mere fish
00:18:55
stick next to a great white shark. And
00:18:57
the solution, therefore, I think it it
00:18:59
can't be to always feel inferior. And
00:19:02
the solution can't be to build the best
00:19:03
house in the world. We have to back up
00:19:05
and and reset our baseline. The solution
00:19:07
is to train yourself to not compare in
00:19:09
the first place. Right? Comparison truly
00:19:11
is the thief of joy. The learning curve
00:19:14
though to train yourself not to compare.
00:19:16
It's a really steep learning curve. It's
00:19:18
really hard to do. Our western culture
00:19:20
and it's bent on on materialism and
00:19:23
status has bombarded us with the urge to
00:19:25
compare. Just go down the highway and
00:19:27
check out all the bumper stickers about,
00:19:29
you know, whose kid is going to what
00:19:31
college and and where you're an
00:19:32
honorroll student at and all the other
00:19:35
things. You know, we are a society that
00:19:37
sometimes seems to be built on
00:19:39
materialism and comparison. But we have
00:19:41
to learn, hard as it might be, not to
00:19:43
assign our self-worth based on
00:19:45
comparisons. Your house, your car, your
00:19:48
dog's status as the the kennel club
00:19:50
puppy of the month, it doesn't make you
00:19:51
a superior or inferior person. I found
00:19:54
this exercise once that I think is
00:19:56
useful. I'll be honest with you, I
00:19:57
haven't exactly um followed this
00:19:59
exercise routine myself, but the
00:20:01
exercise is to write down what you want,
00:20:04
to write down why you want it, then to
00:20:06
write down why it'll make you happy, and
00:20:08
you write down the date of of when
00:20:09
you're maybe making that particular
00:20:11
entry, and then you rinse and repeat.
00:20:13
Maybe it's once a month, maybe it's once
00:20:15
a quarter, but essentially the the whole
00:20:17
exercise here is to start tracking your
00:20:19
desire. And when enough time has
00:20:21
elapsed, you can start to track your
00:20:22
happiness, too. And you'll start to
00:20:24
collect real data from these real past
00:20:26
versions of yourself. And that data
00:20:29
might show you if you're struggling on
00:20:30
the hyonic treadmill. Are your desires
00:20:33
from the past, are they based on
00:20:34
comparisons to others? Or are they based
00:20:37
on real material needs in your life? Do
00:20:39
your desires turn into actions? And did
00:20:41
that action actually lead you to more
00:20:44
happiness? Or did it lead to
00:20:46
dissatisfaction and more desire? Did
00:20:48
your happiness or unhappiness persist?
00:20:51
Was it fleeting? Did you hydonically
00:20:53
adapt to more happiness? I mean, humans
00:20:55
have struggled with this stuff forever.
00:20:57
The Seriniacs were trying to figure it
00:20:59
out 2400 years ago and then Buddha had
00:21:01
them beat by about 150 years. He was
00:21:03
trying to figure out 2,600 years ago.
00:21:05
Seeking contentment is part of the human
00:21:08
condition. In fact, this discontent is
00:21:10
probably a simple evolutionary side
00:21:12
effect. Who's more likely to survive?
00:21:14
The animal who's content to sit on his
00:21:16
butt or the animal who's constantly
00:21:18
seeking more and more and more? And
00:21:20
while desire seeking might be natural,
00:21:22
at least certainly part of natural
00:21:23
selection, most of you and most of us
00:21:25
are beyond the, you know, ape on the
00:21:27
savannah days, we no longer need the
00:21:30
more more more to survive. It doesn't
00:21:32
take a a sensual heedist to remind you
00:21:34
to eat, drink, and be merry for, as Dave
00:21:37
Matthew says, for tomorrow we die. And
00:21:39
then last, I want to dive into kind of
00:21:40
where the rubber meets the road. This is
00:21:42
a combination of what's going on in your
00:21:44
head, but also the nuts and bolts of how
00:21:46
we put together an actual financial
00:21:47
plan. I want to talk the six components
00:21:50
of behavioral loss tolerance. You know,
00:21:53
BLT, yes, my favorite BLT is a sandwich,
00:21:55
but my second favorite BLT is behavioral
00:21:58
loss tolerance. We've talked a lot on
00:22:00
the podcast and on the blog before about
00:22:02
the fact that each of us has a a
00:22:04
willingness and ability and need to take
00:22:06
on risk. Those three words, willingness,
00:22:08
ability, and need. More specifically,
00:22:11
the ability and the need part, those are
00:22:13
objective and numerical. Your need to
00:22:15
take risk relates to the amount of
00:22:17
objective investment growth required to
00:22:19
meet your financial goals. And then your
00:22:22
ability to take risk is based on your
00:22:24
capacity to withstand and recover from
00:22:26
losses, temporary losses, permanent
00:22:28
losses. So whereas need is a function of
00:22:30
required growth. Ability is a function
00:22:33
of recovery from loss. And again, those
00:22:35
are based on hard numbers. But your
00:22:37
willingness to take on risk is
00:22:39
subjective. It's really a matter of
00:22:41
feelings and psychology, purely mental.
00:22:43
How will you react to the higher
00:22:45
volatility that comes with high-risisk
00:22:46
investments? You know, are you willing
00:22:48
to stomach losses? So, today I want to
00:22:50
dive deeper into that willingness to
00:22:52
take risks. And really, the more
00:22:54
technical term for the willingness to
00:22:55
take risk is behavioral loss tolerance,
00:22:58
BLT, behavioral loss tolerance. And
00:23:00
specifically, I'm going to focus right
00:23:02
now on the six agreed upon components of
00:23:04
an investor's behavioral loss tolerance
00:23:07
along with a bunch of questions that you
00:23:08
can ask yourself to start to figure out
00:23:11
where you lie on this BLT behavioral
00:23:13
loss tolerance spectrum. The first of
00:23:15
the six pillars is risk tolerance. Risk
00:23:17
tolerance describes your readiness to
00:23:19
engage in financial behaviors with
00:23:21
uncertain outcomes and potential for
00:23:23
loss. So, it typically measures how much
00:23:25
loss you might be comfortable facing
00:23:27
before feeling the need to exit an
00:23:29
investment or reduce your exposure to
00:23:31
future losses. Risk tolerance is usually
00:23:33
assessed via a questionnaire. So, some
00:23:35
typical risk tolerance questions might
00:23:37
include, how many years do you plan to
00:23:40
keep your money invested before needing
00:23:41
it? How do you feel about short-term
00:23:43
losses in exchange for long-term growth?
00:23:46
If your portfolio dropped 20% in a year,
00:23:49
what would you do? Would you sell
00:23:50
everything? Would you sell some to
00:23:52
reduce risk? Would you hold steady or
00:23:54
would you buy more while it's down?
00:23:56
Another question. Would you rather gain
00:23:58
4% per year with no volatility or have a
00:24:02
50/50 chance of gaining 12% or losing
00:24:05
5%? 50-50 chance. So, guaranteed 4% or a
00:24:09
50/50 chance between gaining 12 or
00:24:11
losing five. The next question, how
00:24:13
often do you check your investment
00:24:14
account balances? How often do you log
00:24:16
in? How often do you check those
00:24:17
balances? If your $100,000 portfolio
00:24:20
dropped to $85,000 over a six-month time
00:24:23
span, what would you most likely do? And
00:24:25
then the last one, imagine two
00:24:26
investments. Which would you choose
00:24:28
from? Investment A with an expected
00:24:30
return of 6% and a worst year of minus
00:24:32
10% or investment B with an expected
00:24:36
return of 10% but a worst year of minus
00:24:38
30%. So again, all of those are risk
00:24:41
tolerance questions. And risk tolerance
00:24:43
is your it's your readiness to engage in
00:24:46
financial behaviors with uncertain
00:24:48
outcomes and potential for loss. But the
00:24:51
second now of the six pillars is risk
00:24:53
preference which represents your general
00:24:55
desire to take more or less risk. This
00:24:58
is where you might describe your
00:24:59
personal attitudes and priorities about
00:25:01
risks. Would you rather preserve your
00:25:03
money even if it means lower growth? Do
00:25:05
you value compounding your money even if
00:25:07
it means occasional losses? What's your
00:25:09
first instinct when you think about
00:25:10
investing? to seek growth or to prevent
00:25:12
loss. How do you describe yourself as an
00:25:14
investor on a spectrum from
00:25:16
ultra-conservative to ultra aggressive?
00:25:18
You know, a good question would be,
00:25:20
would you rather own a a slow and steady
00:25:23
bond fund with minimal risk, a high
00:25:25
growth stock fund that might be volatile
00:25:28
along the way, or something in between,
00:25:30
a diversified portfolio of stocks and
00:25:31
bonds? Those kind of answers shed a lot
00:25:34
of light about your risk preference. The
00:25:36
third pillar, financial knowledge.
00:25:38
Financial knowledge represents your
00:25:40
financial education and training. I love
00:25:42
financial knowledge. You know, an
00:25:43
investment in knowledge pays the best
00:25:44
interest, right? A strong foundation in
00:25:47
financial knowledge helps interpret and
00:25:49
process emotionally process what's
00:25:51
happening in your personal finances, in
00:25:53
your financial plan, in your portfolio.
00:25:55
I would wager, and I'm not alone, that
00:25:56
people with stronger financial knowledge
00:25:58
tend to better understand that
00:26:00
short-term losses are normal, know
00:26:02
historical returns and risks of
00:26:04
different asset classes, have more
00:26:06
realistic expectations for investment
00:26:08
returns, feel more in control of their
00:26:11
investment decisions, and they avoid
00:26:13
panicking when markets drop. In
00:26:15
contrast, someone with lesser or lower
00:26:17
financial knowledge, they might think
00:26:19
that a a 10% loss from the stock market
00:26:21
is unusual or catastrophic. They might
00:26:24
confuse short-term volatility with
00:26:26
long-term failure. They might always
00:26:28
believe that they need to do something
00:26:30
during downturns. They need to take
00:26:32
action. They need to go out and do
00:26:33
something when when markets are choppy.
00:26:35
They might overestimate the safety of
00:26:38
cash or or fixed income. Financial
00:26:40
knowledge doesn't guarantee high
00:26:42
behavioral loss tolerance, but it
00:26:44
certainly can raise someone's ceiling by
00:26:46
helping them stay rational and stay
00:26:47
grounded when markets test their nerves.
00:26:49
The fourth pillar is investing
00:26:51
experience which describes your time and
00:26:54
experiences in the world of investing
00:26:56
specifically and and maybe the way worth
00:26:59
pointing out and comparing and
00:27:00
contrasting is that someone can have
00:27:02
substantial financial knowledge but have
00:27:04
limited financial experience and vice
00:27:06
versa. You know, investing experience
00:27:08
reflects how much real world exposure
00:27:10
someone has to the ups and downs of
00:27:12
markets through actually putting their
00:27:14
money at risk. It's the lived version of
00:27:16
financial knowledge. I remember during
00:27:18
one of my first commercial flights,
00:27:20
there was well at the time I what I
00:27:22
thought was pretty bad turbulence. Only
00:27:24
in retrospect did I realize it was
00:27:25
relatively minor turbulence. And that's
00:27:27
kind of the point is this relatively
00:27:29
minor turbulence scared the heck out of
00:27:31
me. I mean, I was white knuckle gripping
00:27:33
the armrests in between the chairs. And
00:27:36
part of that is because I had no
00:27:37
experience. I had nothing to judge
00:27:39
turbulence against. Only in time did I
00:27:41
realize that, well, first off,
00:27:42
turbulence is pretty normal. and that
00:27:44
what I experienced on that flight was
00:27:46
really just a drop in the bucket. And
00:27:48
there is a similarity in investing.
00:27:50
Experience brings emotional muscle
00:27:52
memory with it, right? Someone who's
00:27:54
seen losses, who's held steady and
00:27:56
watched a recovery, they have a deeper
00:27:58
and calmer relationship with risk. And I
00:28:00
contrast that with someone who's new to
00:28:01
investing, even if they've read all the
00:28:03
right books, they haven't felt the
00:28:05
stomach drop of a bare market or the
00:28:07
thrill of a bull market. Their risk
00:28:09
tolerance is pretty untested. And the
00:28:11
questions here are are straightforward.
00:28:13
How long have you been investing? What
00:28:15
was your first market downturn and how
00:28:17
did you handle it? Have you ever made a
00:28:18
decision with your investments that you
00:28:20
later regretted? Do you remember what
00:28:22
you did in the dotcom bubble or in 2008
00:28:25
or in 2020 with COVID or in 2022 when
00:28:28
the interest rate spikes? You know, do
00:28:30
you have scar tissue? And that's really
00:28:32
what investing experience. This fourth
00:28:33
pillar is all about is our scar tissue
00:28:36
from past experiences. The fifth pillar
00:28:38
is risk perception. It's a subjective
00:28:40
assessment of the riskiness or lack
00:28:42
thereof of investing. It's typically
00:28:44
influenced by social interactions, by
00:28:47
the media, by our understanding of
00:28:48
financial concepts. I mean, two people
00:28:51
can look at the same investment and see
00:28:52
very different things. This is an
00:28:54
interesting one because we see this all
00:28:55
the time or at least I see this all the
00:28:57
time, right? If I put a lot of people
00:28:59
like to quote Vanguard index funds. So
00:29:01
if I put VO, the S&P 500 index fund or
00:29:05
VTI, which I think is the total market,
00:29:07
the total US stock market index fund,
00:29:09
two people can look at those two ETFs,
00:29:12
and one sees a a lowrisk, very
00:29:15
diversified index fund. Another person
00:29:18
would say, but that's all stocks, and
00:29:20
all stocks by nature is pretty risky. So
00:29:24
two people can look at the same
00:29:25
investment and see very different
00:29:26
things. Two people can look at the same
00:29:28
market behavior, say a 10% correction.
00:29:31
One person sees a temporary dip and it's
00:29:33
a buying opportunity. A second person
00:29:35
sees it as a sign to sell and to sell
00:29:37
quickly cuz they just quote unquote lost
00:29:39
10% of their money. So this risk
00:29:41
perception isn't always based on facts
00:29:43
or statistics. It's truly based on a
00:29:46
subjective perception in an individual
00:29:48
investor's mind of what's happening and
00:29:50
then what might happen next. Risk
00:29:52
perception is often shaped by recent
00:29:54
market events, right? recency bias by
00:29:56
media narratives, by personal or family
00:29:59
history. You know, if someone says, "My
00:30:00
parents lost everything in 2008," that's
00:30:03
going to have a really big effect on
00:30:04
their risk perception. It can be based
00:30:06
on cultural or generational mindsets.
00:30:08
When I hear someone say, "The stock
00:30:10
market is basically just a casino." To
00:30:12
me, that's them speaking out loud part
00:30:15
of their risk perception. And some
00:30:17
open-ended questions to consider to
00:30:18
evaluate your own or evaluate someone
00:30:20
else's risk perception. It could be
00:30:22
something like uh what does the word
00:30:24
risk mean to you? Do you see investing
00:30:26
as a positive thing? Do you see
00:30:28
investing as a way to grow wealth? Or do
00:30:30
you see investing as something you
00:30:31
really need to be cautious about? What
00:30:34
concerns do you have when markets go
00:30:35
down? The goal is to uncover how someone
00:30:38
frames risk, not just how someone reacts
00:30:40
to it. And then the last, the sixth, the
00:30:43
final pillar is risk composure. Risk
00:30:45
composure measures your actual behavior
00:30:47
during difficult market conditions, your
00:30:49
ability to stay calm and stick with your
00:30:51
investment plan when markets get choppy.
00:30:53
It reflects your emotional steadiness in
00:30:55
the moment, especially during
00:30:56
volatility, uncertainty, or loss. In
00:30:59
fact, some financial experts, I'm not
00:31:01
sure I'm one of them, but some financial
00:31:03
experts recommend that someone that you
00:31:05
intentionally stay conservative in your
00:31:07
investment portfolio until you've lived
00:31:10
through a market crash. as you can't
00:31:12
truly know your risk composure. This
00:31:14
sixth pillar, you can't truly know it
00:31:15
until you've lived through it. So,
00:31:17
people with high risk composure, they
00:31:19
tend to stay invested throughout bare
00:31:21
markets. They tend to avoid panic
00:31:23
selling or reactionary moves. They
00:31:25
understand that downturns are part of
00:31:27
the process. They tend to seek counsel
00:31:29
or reassurance instead of immediately
00:31:31
taking action. And just in general, I
00:31:34
would say they tend to stay calmer even
00:31:36
when markets are more chaotic. Whereas
00:31:38
people with low risk composure, they
00:31:41
tend to sell quickly during draw downs,
00:31:43
frequently change strategies, or
00:31:45
reallocate. This is a really important
00:31:46
one because there are plenty of people
00:31:48
out there who I've interacted with who
00:31:50
say, "No, no, it's it's not that I I
00:31:52
want to avoid investing altogether. It's
00:31:55
just that, you know, now that Nvidia is
00:31:57
doing well, I really want to throw 10%
00:31:59
of my money at Nvidia. Now that Bitcoin
00:32:01
is doing well, I want to throw money at
00:32:03
Bitcoin. And then, oh, Nvidia's not
00:32:05
doing well anymore. Yeah, I I still want
00:32:07
to keep my money in the market, but now
00:32:08
I'm going to sell all my Nvidia now that
00:32:10
it's down, and now I'm going to go put
00:32:12
that money into an index fund just to
00:32:13
diversify. So, people who frequently
00:32:15
change strategies, people who frequently
00:32:17
reallocate, that's a sign of low risk
00:32:19
composure. Some other signs include just
00:32:21
feeling emotionally overwhelmed during
00:32:23
market stress and needing frequent
00:32:26
handholding, like you know, very very
00:32:29
frequent handholding because they're
00:32:30
letting the media or or short-term
00:32:33
market behavior really affect what's
00:32:35
going on in their brain. Some good
00:32:37
questions to ask yourself to gauge your
00:32:38
risk composure include, have you ever
00:32:40
sold investments out of fear or stress?
00:32:42
When markets fall, how often do you
00:32:44
check your investing accounts? Do you
00:32:47
feel pressure to do something? You got
00:32:49
to do something when the market is down.
00:32:51
Now, the hard part about all of this and
00:32:52
and I should say that that wraps up our
00:32:54
six pillars again. They were risk
00:32:56
composure, risk perception, investing
00:32:59
experience, financial knowledge, risk
00:33:01
preference, and risk tolerance. But now
00:33:04
moving on, the hard part about all this
00:33:06
in my opinion is transitioning from the
00:33:09
six pillars from the the sample
00:33:11
questions that I mentioned after each
00:33:12
pillar your answers to those questions
00:33:14
to then getting to an appropriate asset
00:33:16
allocation for you. Right? At the end of
00:33:18
the day, this is about understanding
00:33:20
your behavioral loss tolerance so that
00:33:22
you can build a portfolio that reflects
00:33:25
how you feel about investing in the
00:33:27
markets and risk and returns and all
00:33:28
that. And there really is no perfect
00:33:30
approach. But I I really do think that
00:33:32
your answers to the questions I was
00:33:33
asking before. And I I think where you
00:33:35
fit into this u framework of these six
00:33:37
pillars can really help drive towards a
00:33:40
better or more accurate asset allocation
00:33:42
for you. And I I really think of this
00:33:45
problem, if you will, almost like a
00:33:46
spectrum from white to black. And and
00:33:48
maybe we've seen it before, whether at
00:33:50
like a paint store or just for some
00:33:51
reason online, this interesting
00:33:53
illustration of just purest white to the
00:33:56
deepest darkest black with many, many
00:33:58
different shades of gray in between. I
00:34:00
know that most people, most of us
00:34:02
listening, we're going to end up
00:34:03
somewhere in the in the gray. We're all
00:34:05
going to be various shades of gray. But
00:34:07
there is a really big difference between
00:34:10
dark dark gray so dark it's almost black
00:34:12
and light light gray so light it's
00:34:14
almost white. Yeah, sure they're both
00:34:16
gray, but they're very very different. I
00:34:18
wrote in an article that I'll link in
00:34:20
the show notes, an article called Pedal
00:34:21
to the Metal that similarly like there's
00:34:24
not really a big difference if you're in
00:34:25
a 55 mph zone and sure if you're going
00:34:28
57 technically you're speeding and if
00:34:31
you're going 53 m hour technically
00:34:33
you're not. But there really isn't a big
00:34:35
difference at all between driving 53 and
00:34:38
57 miles an hour. It's just the most
00:34:41
minute small differences in in shades of
00:34:43
gray. And similarly in investing, I
00:34:46
don't really see that big of a
00:34:47
difference between a 60/40 portfolio and
00:34:49
a 5545 portfolio. If the second one
00:34:53
because it's a little more conservative
00:34:54
makes you feel better, that's fine. But
00:34:56
in terms of results and in terms of
00:34:58
actual risk and reward of the portfolio,
00:35:00
there's just a very very small
00:35:01
difference. And I'm not sure that any
00:35:03
sort of risk questionnaire or behavioral
00:35:05
loss tolerance questionnaire uh is going
00:35:07
to help us draw a distinction there. But
00:35:10
there is a really big difference between
00:35:12
driving 70 m hour and driving 50 m an
00:35:15
hour. Like th those are two different
00:35:17
things. And there is a big difference
00:35:19
between a 7030 portfolio and a 50/50
00:35:22
portfolio. And while they're both
00:35:24
certainly shades of gray, I think that
00:35:26
your behavioral loss tolerance and and
00:35:28
that kind of questionnaire really can
00:35:30
draw a distinction between those shades
00:35:33
really can help us make a determination
00:35:34
of to whether you'd be more appropriate
00:35:36
in a 7030 portfolio or in a 50/50
00:35:39
portfolio. So in that way, behavioral
00:35:42
loss tolerance and and its six
00:35:43
subcomponents, they aren't going to give
00:35:45
you a perfect answer of how to build
00:35:47
your portfolio according to your unique
00:35:49
risk level. But directionally, they're
00:35:52
terrific. And I would recommend that any
00:35:53
investor, new or old, understand where
00:35:56
their answers lie and kind of where they
00:35:58
map onto the framework of the six
00:36:00
pillars of behavioral loss tolerance.
00:36:03
Here's a quick ad and then we'll get
00:36:04
back to the show. Did you know my
00:36:06
written blog, The Best Interest, was
00:36:09
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00:36:12
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00:36:19
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00:36:24
read them all at bestinterest.blog.
00:36:27
Again, the web address is
00:36:29
bestinterest.blog.
00:36:31
Check it out. So without further ado
00:36:34
now, let's talk more about your brain on
00:36:37
money with Hannah Horvath. Again, Hannah
00:36:38
is a CFP certified financial planner.
00:36:41
She's the managing editor at Bankrate
00:36:43
and she writes a lot of cool stuff about
00:36:45
your brain on money over at her Substack
00:36:48
newsletter called Your Brain on Money.
00:36:50
So without further ado, here's Hannah.
00:36:53
[Music]
00:36:57
Hannah, I'm excited to dive into some
00:36:59
interesting uh money psychology topics
00:37:01
with you today. Hey, and I I started
00:37:02
with this I want to start with this
00:37:03
juicy one simply because, you know, most
00:37:06
of my audience uh it's kind of cool how
00:37:08
you can get stats on who your audience
00:37:09
is from some of these podcast players.
00:37:11
And I know that most my audience is
00:37:12
maybe 40s or 50s thinking about
00:37:15
retirement. So the question is, do you
00:37:17
think people get more or less rational
00:37:20
about money as they age and why?
00:37:23
>> Oh, I don't want to say more or less,
00:37:25
but I don't think you get more rational
00:37:27
just as you get older. You know, I feel
00:37:29
like one of the big kind of takeaways of
00:37:31
money psychology is that more
00:37:33
information doesn't always equal more
00:37:37
action. Obviously, the older you are,
00:37:39
you've had more experiences, you've had
00:37:41
more access to financial knowledge,
00:37:42
maybe you've handled money more, but
00:37:45
unless you've kind of taken the time to
00:37:47
unpack your financial behaviors, you can
00:37:50
wind up repeating the exact same money
00:37:52
mistakes over and over again for
00:37:55
decades. And the pre-retirement period
00:37:59
into retirement period especially, I
00:38:02
think is a very fraught period that's
00:38:04
wrapped up in a lot of emotion and just
00:38:08
a very kind of high stress period
00:38:10
potentially because you're making a huge
00:38:11
life transition. So I think just those
00:38:14
phases of your life naturally lends
00:38:16
itself to less rational behavior.
00:38:19
>> Mhm. You mentioned something there just
00:38:20
about repeating the same mistakes over
00:38:22
and over and over again. Is that just a
00:38:24
function of just not being aware that
00:38:27
there's a mistake in the first place? Or
00:38:29
is it almost like when you hear about
00:38:30
people who have, you know, bad habits,
00:38:32
we all have some bad habits and like,
00:38:33
yeah, when I think about my bad habits,
00:38:35
I know it's a bad habit and yet I still
00:38:38
sometimes repeat that habit over and
00:38:39
over again. So when it comes to money,
00:38:41
is it easy to fit into one of those two
00:38:43
boxes or is there a little bit of both?
00:38:45
>> I would say it's definitely both. I
00:38:46
think definitely the first piece is so
00:38:49
much of our money behaviors. I think we
00:38:51
just don't realize how much of our
00:38:53
unconscious I call them money scripts,
00:38:56
but kind of things h happening under the
00:38:58
surface that are causing our financial
00:38:59
behavior. So that's kind of the first
00:39:01
piece, but I do agree. I think a lot of
00:39:03
people are at least somewhat aware of
00:39:05
their bad habits and money habits could
00:39:06
be part of that. And of course, if you
00:39:09
haven't thought through sustainable ways
00:39:12
to improve those habits, you're going to
00:39:13
keep making them. So there is a little
00:39:15
bit of like conscious effort involved
00:39:16
there.
00:39:17
>> Remind us again like what what do you
00:39:18
mean by money script? What's an example
00:39:20
of that?
00:39:21
>> Yeah. So I think people have a tendency
00:39:23
to think of money as this very
00:39:25
quantitative robotic tangible thing when
00:39:29
really it is so emotional and so
00:39:32
personal to us. And we have money
00:39:36
scripts which are these kind of
00:39:37
underlying beliefs and emotions we have
00:39:40
about money. And they are often formed
00:39:42
initially in childhood but they are
00:39:44
shaped throughout your life experiences
00:39:47
and they I describe it almost like a
00:39:49
computer where they're running
00:39:50
automatically in the background. They
00:39:52
influence a lot of your behavior, your
00:39:54
financial behavior and a lot of times we
00:39:56
have no idea that's even happening. It's
00:39:59
very interesting in that it has a huge
00:40:00
impact on our wealth over time. And yet
00:40:04
I think a lot of people aren't fully
00:40:05
aware of just how much our emotions and
00:40:07
also our these unconscious scripts
00:40:09
affect our money decisions.
00:40:10
>> I'm listening to your answer and like
00:40:12
part of my brain is going, "Well, I
00:40:14
don't have those." But then of course
00:40:17
part of your explanation is that they're
00:40:18
going on under the surface. They're
00:40:20
unconscious or subconscious and and
00:40:22
you're not even aware of what's going
00:40:24
on. So it's kind of that like, well, you
00:40:26
don't know what you don't know. So, how
00:40:28
can someone start to untangle, if that
00:40:31
makes sense, how can someone discover
00:40:32
what their unconscious money scripts
00:40:34
even are?
00:40:35
>> Yeah. So, the first is to just think
00:40:38
about what your financial habits are,
00:40:41
good or bad, how you handle money, and
00:40:44
think about kind of what comes up, like
00:40:45
what emotions come up. And then think
00:40:47
about what were kind of some early
00:40:49
experiences you had with money with, you
00:40:51
know, your parents have a big influence
00:40:53
on how you handle money later in life.
00:40:54
And I'm not just talking about the way
00:40:56
that they spent and saved. I'm talking
00:40:57
about the way they talked about money.
00:40:59
And that even as a young child, you can
00:41:01
it can be very impressionable on how you
00:41:03
kind of perceive things down the road.
00:41:05
So just taking some time to sort of
00:41:07
reflect on all of that can help you
00:41:09
understand, oh, this is why I feel
00:41:11
anxious when I check my bank account.
00:41:12
This is why I kind of avoid making a
00:41:15
budget. And again, just really bringing
00:41:17
awareness is sort of the first step. And
00:41:19
it really is a first step to kind of
00:41:21
building better, longer, sustainable
00:41:24
habits. But something I did want to
00:41:25
touch on is I think a really common
00:41:28
fallacy is that you and I, we know a lot
00:41:31
about money, right? We have a lot of
00:41:32
financial knowledge. And what'll happen
00:41:35
is when we make, or at least I'll speak
00:41:36
for myself, when I make a money mistake,
00:41:38
I tend to beat myself up cuz I'm like, h
00:41:40
I know all this information. Why am I
00:41:42
still making these mistakes? And that's
00:41:44
why it's so important to understand
00:41:45
these kind of unconscious things that
00:41:47
are running in the background because
00:41:49
then you can have a little bit more
00:41:50
self-compassion and understand you know
00:41:52
it's just my it's my brain and you know
00:41:54
it maybe will empower you to kind of
00:41:56
take more action.
00:41:57
>> Yeah, that is really interesting. And
00:41:59
going back to I think you mentioned this
00:42:01
term today. I know you mentioned it in
00:42:03
your writing this term of emotional
00:42:05
discipline. Mhm.
00:42:06
>> And so I I think about like, okay, like
00:42:08
I I know the dictionary definitions of
00:42:11
those words, but sometimes in my own
00:42:13
life, right, whether it's getting
00:42:14
frustrated over something I did wrong or
00:42:17
having a hard conversation with my wife,
00:42:19
I think about applying that word emot
00:42:22
that term emotional discipline there,
00:42:23
but how does that emotional discipline,
00:42:25
what what does it really mean maybe in a
00:42:27
in a psychological context and then how
00:42:29
do we apply it to our finances? Like
00:42:31
what does that look like in practice?
00:42:33
>> Yeah. So emotional discipline isn't
00:42:36
controlling your emotions completely
00:42:37
because we're never going to be perfect.
00:42:39
There's always going to be moments where
00:42:41
our emotions get the best of us, but
00:42:42
it's just understanding your emotions
00:42:45
and the place that they're coming from
00:42:46
because emotions are data. They're
00:42:49
pointing you in a direction of some
00:42:51
deep-seated feelings or ideas that you
00:42:54
have or or even part of how you perceive
00:42:56
yourself or you want someone else to
00:42:58
perceive you. The same goes for money.
00:43:00
And again, it goes back to this idea
00:43:01
where I think a lot of people think of
00:43:03
money as not emotional. And so I don't
00:43:06
think they always realize that there are
00:43:08
emotions attached to a lot of our
00:43:10
financial behaviors. So I think it's
00:43:13
really important to start to one
00:43:14
obviously unpack the emotions, but then
00:43:17
also bring a little bit of I always say
00:43:19
like just build in some frameworks where
00:43:21
you can just build a little gap between
00:43:24
the emotion and the action. I'm someone,
00:43:26
for example, who used to very anxiously
00:43:30
check my bank account multiple times a
00:43:31
day. And it was really coming from a
00:43:33
place of worrying that I was going to
00:43:35
lose all my money, you know, and this
00:43:37
feeling of scarcity. And once I was able
00:43:39
to unpack that, I was able to
00:43:40
understand, okay, this is this emotion
00:43:42
that's coming up and is driving me to do
00:43:44
this financial behavior. I was able to
00:43:46
then kind of break that bad habit by
00:43:48
bringing awareness to that.
00:43:50
>> You said putting a little gap in between
00:43:52
the emotion and the action. I mean is
00:43:54
that literally a time gap or is it some
00:43:57
other sort of gap?
00:43:58
>> It could be I mean yes it can literally
00:44:00
be a gap and I mean it could be like 5
00:44:02
seconds. The example I always give is
00:44:04
like to not for example save your credit
00:44:06
card information in your computer. So
00:44:08
you know the literal like 10 seconds it
00:44:11
takes you to get up and go get your
00:44:12
credit card across the room. That can
00:44:14
sometimes be enough time to slow down
00:44:16
your thinking and sort of be able to
00:44:19
make a more intentional decision. We
00:44:20
have two decision-m systems happening in
00:44:23
our brain. And this is something that
00:44:24
was kind of discovered and then
00:44:25
popularized by Daniel Conorman in that
00:44:27
book thinking fast and slow. We have the
00:44:30
fast emotional system that makes those
00:44:33
very quick split split-second decisions
00:44:35
and then the slow analytical system that
00:44:37
is great for long-term planning. And
00:44:40
these systems work together. And what
00:44:42
you want to do when to bring more kind
00:44:44
of discipline into your life is to kind
00:44:46
of create that gap so that you know
00:44:48
slower system can take back control
00:44:50
instead of just making those impulsive
00:44:52
choices.
00:44:53
>> Interesting. Yeah. Danny Conorman uh
00:44:55
often cited here on the podcast and on
00:44:58
the blog. You just mentioned some of
00:44:59
your own anxiety in your in your
00:45:01
personal fan finances and I think about
00:45:03
the emails that I get and right a lot of
00:45:06
them tend to be retirement focused in
00:45:07
some way retirement planning focused and
00:45:10
there seems to be a lot of anxiety about
00:45:13
making money decisions including from
00:45:14
people who like from the outside looking
00:45:16
in the term I've used before is winning
00:45:18
the game. There's some people out there
00:45:20
who have who have won the game by any
00:45:22
sort of quantitative measuring stick.
00:45:24
they've won and yet they still have a
00:45:26
lot of emotion tied up with the act of
00:45:29
retirement, the act of planning for
00:45:31
retirement. So I'm just curious like
00:45:32
from your point of view, I'm not sure
00:45:34
how to frame this question exactly, but
00:45:36
it's like what role does anxiety play in
00:45:38
money decisions in financial planning
00:45:41
specifically if you have any experience
00:45:42
with this around retirement? Well, first
00:45:44
off, money anxiety is very common and it
00:45:48
does not matter how much money you have,
00:45:50
what your net worth is, you can
00:45:52
experience money anxiety and I think
00:45:54
like I was saying earlier in our
00:45:55
conversation for retirement
00:45:57
specifically, you have spent decades
00:45:59
likely preparing for this event. It's a
00:46:01
big life change. You know, not only in
00:46:03
like what you're doing every day, you're
00:46:05
hypothetically not working anymore, but
00:46:07
also just how you're perceiving
00:46:08
yourself. And so, it's a big identity
00:46:11
shift. So that could be scary for a lot
00:46:12
of people and very anxietyinducing. Even
00:46:14
if you're someone that is like quote
00:46:15
unquote looking forward to retirement,
00:46:17
you can still feel some anxiety there.
00:46:19
And then I think on a larger scale,
00:46:21
there's just tons of economic
00:46:23
uncertainty right now happening in the
00:46:24
macro environment which can lead to a
00:46:27
lot of anxiety because again our brains
00:46:30
a lot a lot of what anxiety is is this
00:46:32
desire to want to control your
00:46:33
situation.
00:46:35
>> And so much of what we're reading on in
00:46:37
the economy we can't control but our
00:46:39
brains want to have that control. So we
00:46:41
get anxious. Same with retirement. I
00:46:42
mean, there's so many variables that you
00:46:44
can plan for in retirement, but things
00:46:46
happen, life happens. It's impossible to
00:46:48
predict anything with certainty. So
00:46:49
again, I think all of that uncertainty
00:46:50
wrapped up in retirement can drive a lot
00:46:53
of that financial anxiety. And I think
00:46:55
that's why a lot of people feel that
00:46:57
even if they've, like you said, have
00:46:58
kind of made it and have it have those
00:47:00
kind of numbers and all that figured
00:47:02
out. I do want to come back when you
00:47:04
talk about certainty and uncertainty and
00:47:06
volatility is a word that I think of and
00:47:09
I think that it's kind of funny uh this
00:47:11
industry my my industry sometimes I
00:47:15
don't want to use the word prey but
00:47:16
maybe that's the best word to use we
00:47:18
pray on the fear of volatility or
00:47:20
financial professionals I should say
00:47:22
some of them prey on the fear of
00:47:24
volatility and they prey on that desire
00:47:26
for certainty and therefore push
00:47:29
products that make certain promises of
00:47:31
certainty we can come back to that one
00:47:32
because one thing you just said there
00:47:34
Hannah had to do with identity
00:47:36
retirement as an identity shift and yeah
00:47:38
I think to myself well like the markets
00:47:40
are somewhat out of your control the
00:47:42
macroeconomy is somewhat out of your
00:47:43
control but for a lot of retirees their
00:47:46
identity well if if your identity isn't
00:47:48
within your control then what is
00:47:50
>> and yet there's this massive identity
00:47:52
shift so like okay obviously from the
00:47:54
outside looking in I was a worker now
00:47:56
I'm a retiree my identity is shifted is
00:47:59
it more complex than that and I guess
00:48:01
really the underlying question is what
00:48:03
can we do to try to make sure that this
00:48:05
big shift in identity doesn't produce
00:48:07
this anxiety doesn't derail our
00:48:09
long-term plans.
00:48:11
>> Yeah. So I think when most people plan
00:48:14
for retirement they think of a number
00:48:17
you know you can run a very
00:48:18
sophisticated calculation and get a
00:48:19
number which is obviously important but
00:48:22
what I think a lot of people might not
00:48:24
take enough time to do is think what do
00:48:26
I want my retirement to look like? What
00:48:27
do I want my life to look like? What
00:48:29
what do I care about? And I always say
00:48:31
money is a tool to give you the life
00:48:33
that you want. But if you have not
00:48:35
clarified what you care about, what you
00:48:37
value, it's often going to lead to
00:48:39
discontent because you'll end up
00:48:40
spending money on things that you don't
00:48:42
care about. And so I think that happens
00:48:44
in retirement where people are very
00:48:46
fixated on a numerical goal and then
00:48:48
they get there and then they retire and
00:48:50
they don't know how to use their money
00:48:52
in a way that will bring them
00:48:53
satisfaction. Like a small example that
00:48:55
I can think of is, you know, maybe
00:48:57
you're someone who really values travel
00:49:00
and freedom and and yet you're saving up
00:49:04
to buy a house in retirement. You can
00:49:06
see the disconnect there. So I think
00:49:08
again like making sure that your
00:49:10
financial goals retirement and in
00:49:12
retirement lines up with what how you
00:49:14
actually want to live your life. I think
00:49:15
that'll help drive a lot of the purpose
00:49:18
that you got from work. But again, it
00:49:20
is, you know, as you said, it is a big
00:49:22
identity shift. I think especially in
00:49:23
America, people derive a lot of their
00:49:26
purpose from work. So I think, you know,
00:49:29
that's kind of like a separate
00:49:30
conversation, but really trying to find
00:49:31
a way to think about like what do I want
00:49:34
this chapter of my life to look like?
00:49:35
Where am I going to derive my purpose
00:49:37
from?
00:49:37
>> Do you have any examples either from
00:49:39
from just I don't know interviews you've
00:49:40
done, articles you've written, people
00:49:42
you've spoken to about of how they
00:49:44
replace that purpose in retirement? My
00:49:46
impression based on like, you know, just
00:49:48
talking to people and and researching
00:49:49
that is, you know, I feel like the
00:49:51
latter stage of your life tends to be a
00:49:53
period of kind of reflection and looking
00:49:54
back and wanting to give back and sort
00:49:56
of impart wisdom onto earlier
00:49:59
generations. And that can look in many
00:50:00
different ways. That could be helping to
00:50:02
raise grandkids. That could be doing
00:50:04
some sort of teaching or educational
00:50:06
component. even just like hobbies and
00:50:08
having that sense of community can
00:50:10
really drive a lot of purpose because
00:50:12
work also was a place of social
00:50:14
connection or is a place of social
00:50:16
connection for a lot of people. So
00:50:18
again, it comes back to understanding
00:50:20
your values. If you're somebody who
00:50:22
strongly values community or strongly
00:50:24
values family, finding a way to make
00:50:27
sure that you are working that into your
00:50:30
retirement plan and especially not
00:50:33
following what other people or social
00:50:35
media is telling you you should be doing
00:50:37
in retirement because that leads to
00:50:39
misalignment and then often leads to
00:50:41
discontent.
00:50:42
>> Here's a quick ad and then we'll get
00:50:44
back to the show. You probably know that
00:50:46
I love listener inspired content, but
00:50:48
this is my first listener inspired
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00:50:51
Jesse, is there a best time to start
00:50:53
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00:50:55
short answer is yes. There are two ideal
00:50:57
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00:50:59
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00:51:06
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00:51:14
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whatever other tax dials we can turn for
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those initial conversations is right
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now, August, September, maybe into early
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this right for you. So, if you're
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with me and my colleagues, you can go to
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bestinterest.blog/work
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00:51:40
that's on my blog on the workwithjesse
00:51:42
page. The address is
00:51:43
bestinterest.blog/work
00:51:46
and fill out the form. I think we were
00:51:48
just talking about people maybe feeling
00:51:49
a fear of of running out of money in
00:51:51
retirement. And that's something that I
00:51:53
hear a lot of is like one of these
00:51:54
overarching fears is just can I pull the
00:51:57
retirement trigger today? Can I spend
00:51:59
this much money per year? Can I live
00:52:01
this desired lifestyle
00:52:03
>> and feel positive that I won't run out
00:52:05
of money?
00:52:06
>> So obviously that in itself I mean I
00:52:08
totally get why that's anxietyinducing.
00:52:10
But maybe let's start with that. I do
00:52:12
want to pivot into back to the idea of
00:52:13
volatility. But again, what can people
00:52:15
do other than just kind of pounding
00:52:17
people and and people pounding
00:52:18
themselves over the head with numbers,
00:52:20
numbers, numbers, num, you know, Monte
00:52:21
Carlo analysis and x% withdrawal rule.
00:52:24
What can people actually do? Um, maybe
00:52:26
other than bashing themselves over the
00:52:28
head with numbers that will make them
00:52:30
feel more comfortable to pull that
00:52:31
retirement trigger.
00:52:32
>> The first is understanding that you are
00:52:35
not going to have all the answers when
00:52:36
you retire. You can have, like I was
00:52:38
saying earlier in the conversation, you
00:52:39
can have the perfect retirement plan and
00:52:44
things can happen. Things can go
00:52:45
sideways. It's life. And so I think
00:52:48
getting comfortable with that idea of
00:52:50
uncertainty. But also, you know, maybe
00:52:53
doing a premortem, walk through how
00:52:55
it'll feel or what a contingency plan is
00:52:58
if this XYZ happens. I think that just
00:53:01
even that visualization exercise gives
00:53:03
people at least a sense of control of
00:53:05
like okay my plan is you know it's all
00:53:08
about resilience right like my plan is
00:53:09
resilient it can withstand these kind of
00:53:11
different contingencies so instead of if
00:53:13
something does happen you know you have
00:53:15
sort of this script and you feel more
00:53:16
confident instead of having to rely on
00:53:18
like willpower or discipline or anything
00:53:21
like that and to a point that you made
00:53:23
earlier fear is a very powerful
00:53:26
motivator I think that's why a lot of
00:53:29
the finan financial advice that you see
00:53:31
online is very fear driven.
00:53:34
>> They're fear driven because it often
00:53:36
drives people to take action because it
00:53:38
makes people anxious. And so I think the
00:53:42
other big thing and this is no secret.
00:53:44
This has been repeated like probably
00:53:46
hundreds of times but like knowing when
00:53:48
to stay the course when you have a plan,
00:53:51
feeling confident in your plan and you
00:53:54
know not straying from the path. And as
00:53:57
I was saying before, I think especially
00:53:59
in today's kind of world, especially the
00:54:01
rise of like you know social media and
00:54:03
and all of that is I think when there is
00:54:06
a environment where there's a lot of
00:54:07
fear, there will be people that will
00:54:09
step in and try to kind of sell you
00:54:10
something because again people just want
00:54:12
answers. They they often with money, you
00:54:14
know, they don't want to deal with it.
00:54:15
It's too stressful for them. So they're
00:54:17
just looking for someone to tell them
00:54:19
what to do. Well, I think getting that
00:54:21
advice from a financial adviser is
00:54:23
helpful. If there is somebody saying, "I
00:54:25
have all the answers." That's a huge red
00:54:26
flag. So, like knowing when how to
00:54:28
discern, does this actually make sense
00:54:30
for me or is this person kind of like
00:54:32
selling me snake oil?
00:54:33
>> Yeah, that discerning ability in and of
00:54:37
itself is something that I find people
00:54:38
have to develop over time. It's
00:54:40
something that I'll I'll share with my
00:54:41
audience is like even now like I've been
00:54:43
really immersed in this stuff for
00:54:45
probably 10 years and there's still
00:54:46
something that comes up on a weekly
00:54:48
basis where I'm like, "Oh, I've never
00:54:50
encountered that." Maybe it's a
00:54:51
technical topic. I've never encountered
00:54:53
that specific technical interaction in
00:54:55
the tax code before and so I have to go
00:54:57
and look it up. And similarly, I think
00:54:59
especially whether it's DIYers, people
00:55:01
in the fire movement, people maybe
00:55:02
dipping their toe in the retirement
00:55:04
planning waters, like there are going to
00:55:06
be plenty of things that you don't know
00:55:07
off the top of your head, but it's
00:55:09
important to develop this sense for
00:55:12
okay, I think there might be some sort
00:55:13
of weird interaction here. Let me dig
00:55:15
deeper. And similarly for people maybe
00:55:18
who are contemplating reaching out to a
00:55:20
financial planner, a financial adviser,
00:55:22
someone with a title like that, whether
00:55:24
they do real work or not, it is trying
00:55:27
to develop a little bit of discernment
00:55:28
for like, okay, what exactly will this
00:55:30
person do for me? What are they selling?
00:55:32
That kind of thing. You mentioned
00:55:34
something there, Hannah, having to do
00:55:36
with like preparing yourself for the
00:55:38
inevitability that during your
00:55:40
retirement a market may crash or you you
00:55:42
know, you might go through some hard
00:55:43
times in your financial plan. And this a
00:55:46
little bit of a shameless plug, I love
00:55:48
writing about fire drills, like those
00:55:50
things that we did in elementary school
00:55:51
cuz it's like, okay, four or six or
00:55:53
eight times a year in the middle of
00:55:55
class. Okay, now there are these loud
00:55:57
scary sounds. And over time, you were
00:55:59
taught to just, okay, just stand up, get
00:56:01
in a line, go to the nearest exit, go
00:56:03
outside, and that's that. And the reason
00:56:05
why, of course, is that when there's a
00:56:07
real fire, the last thing they want are
00:56:09
hundreds of kids panicking and not
00:56:11
knowing what to do. Like, what a
00:56:12
terrible tragic situation. But I
00:56:15
encourage my readers, my listeners, just
00:56:16
to do the same thing with your financial
00:56:18
plan. It's like run a fire, a fire
00:56:20
drill, if you will, for your financial
00:56:21
plan. And ask yourself during the good
00:56:24
times, the calm times, you can ask
00:56:26
yourself what would happen if, how would
00:56:28
I react if, how would the numbers look
00:56:30
if the market dropped by 30%. Maybe what
00:56:33
would I change in my plan? Cuz the last
00:56:35
thing we want is for that quote unquote
00:56:37
fire to happen like a market crash. And
00:56:39
then we say, "I've never thought about
00:56:41
this before. I didn't think it could
00:56:43
possibly happen. My emotions are high.
00:56:46
My fightor-flight brain is saying,
00:56:48
"Flee, flee, flee." And yet here I am
00:56:50
supposed to also be making rational
00:56:52
money decisions right now. I I I imagine
00:56:54
that's got to be a recipe for disaster.
00:56:56
>> Yeah. I mean, in those moments, your
00:56:59
brain, it's a, like I said, it's a very
00:57:01
emotional time. It's going to be very
00:57:03
difficult to think rationally and rely
00:57:06
on discipline alone. And so that's why I
00:57:08
love the idea of a fire drill. And also,
00:57:10
I'll just say, I don't think a lot of
00:57:12
people have gone through the exercise of
00:57:15
what it will actually feel like for that
00:57:17
to happen. I'm on the younger kind of
00:57:20
end of the millennial cohort. Most of
00:57:22
our lives we've been in a bull run. We
00:57:26
really have not experienced what it's
00:57:28
like for our portfolios to drop 30%.
00:57:31
Maybe we had a little blip back in
00:57:33
April, but it recovered and now it's
00:57:35
like I think a lot of people have not
00:57:36
done the exercise of like what how am I
00:57:39
going to feel if I open up my account
00:57:42
and it's 30% less than it is right now.
00:57:45
And that's why I think it's really
00:57:46
important to like go through like what
00:57:48
you're going to be feeling and then go
00:57:50
through kind of okay what is the game
00:57:52
plan because it's like almost like you
00:57:54
said it's like a fire drill. It's like
00:57:55
practicing because when that time or if
00:57:57
that time actually comes you don't want
00:58:00
to rely just kind of on your in the-
00:58:02
moment thinking because it's going to be
00:58:03
so stressed out and so anxious
00:58:06
>> because it's not like the 30% drop is
00:58:08
going to occur in a vacuum. It's going
00:58:10
to occur with this overlay of
00:58:12
macroeconomic news or this overlay of
00:58:15
political drama, this overlay of a war
00:58:18
just broke off in in this area. And so
00:58:21
in some sense, you're going to say like,
00:58:22
well, the sky seems to be falling in a
00:58:24
real world point of view. Oh, and also
00:58:26
my portfolio is down 30%. And that's
00:58:29
where I mean, you mentioned April there,
00:58:31
Hannah. Like I had clients in April
00:58:32
basically saying, well, until this whole
00:58:35
tariff thing settles out, doesn't it
00:58:36
make sense just to go to cash? I'm down
00:58:39
10% over the last few days. Let's just
00:58:41
go to cash and wait for it all to settle
00:58:43
out. And in some ways, as a a rational
00:58:46
response, like I totally get why someone
00:58:48
would think that. It's just a matter of
00:58:50
if you look at market history and how
00:58:52
hard it is to make that decision then to
00:58:54
get back into the market. That's where
00:58:56
the rubber meets the road and it becomes
00:58:58
a really scary proposition to act like
00:59:00
that. But left to our own devices, it's
00:59:02
like, of course, this roller coaster is
00:59:04
getting really scary and I want to jump
00:59:05
off the roller coaster. That's totally
00:59:07
human. And it's especially, you know,
00:59:09
the roller coaster is also, like you
00:59:11
said, it's coupled with these
00:59:12
macroeconomic factors and it's also
00:59:13
coupled with every headline, every
00:59:16
social media post, like ringing the
00:59:19
alarm bells. You know, I always say, you
00:59:21
know, during these periods, like back in
00:59:23
April, try to stay off Twitter or X, try
00:59:27
to avoid at least for a couple days the
00:59:29
financial headlines until things die
00:59:30
down. However, don't avoid looking at
00:59:33
your portfolio. I' I've noticed that's
00:59:35
like a kind of common tendency when this
00:59:38
kind of stuff happens. But avoidance
00:59:40
only can increase anxiety. So I actually
00:59:42
encourage people if there's a downturn
00:59:44
happening to look but kind to get that
00:59:47
context to also like practice like okay
00:59:49
this is how I'm feeling like you know
00:59:50
information is really power in these
00:59:52
scenarios. So it's important to just
00:59:54
kind of be aware of what's going on.
00:59:56
You you mentioned a story much earlier
00:59:58
where at one point in life you said you
01:00:00
were checking your bank account like
01:00:02
multiple times a day and that was maybe
01:00:04
a function of some anxiety you were
01:00:05
feeling. So I mean but going back to
01:00:07
this most recent thing that you just
01:00:08
said about check you know you should
01:00:10
check your portfolio don't avoid the
01:00:12
portfolio. How does someone find that
01:00:13
goldilock zone between well I don't want
01:00:15
to avoid my accounts altogether but I
01:00:17
probably also don't want to check them
01:00:19
multiple times a day.
01:00:20
>> Yeah. So I yeah I fell into the anxious
01:00:23
camp and you know checking your accounts
01:00:25
mult times a day I hope you're not doing
01:00:27
it if you're doing it the numbers don't
01:00:29
change too much
01:00:30
>> right
01:00:30
>> for me it was really setting time so
01:00:34
just being deliberate you know it's like
01:00:36
every Friday for 30 minutes I'm going to
01:00:38
go through my accounts I'm going to go
01:00:40
through my spending update my budget
01:00:42
that's like my money time and I try to
01:00:45
do it in a time of week where I'm not
01:00:46
you know Monday through Wednesday you're
01:00:48
stressed it's the beginning of the week
01:00:49
you have a lot of things going on. So, I
01:00:51
try to do it towards the end of the week
01:00:52
where like the stress is a little bit
01:00:53
lower. I don't it and it doesn't feel
01:00:56
like something that's like just to check
01:00:58
off my to-do list. It feels like
01:00:59
something a little bit more intentional.
01:01:00
And when I do start to feel money
01:01:02
anxiety throughout the week, I can say,
01:01:03
"Okay, I'm just going to deal with this
01:01:06
on Friday." And it's almost like I can
01:01:07
just punt all that anxiety off kind of
01:01:10
to that period of time. And that it's a
01:01:12
similar solution for someone who is
01:01:14
avoidant where it's like, "Okay, this is
01:01:16
your one time. you don't have to worry
01:01:18
about checking it any of the other
01:01:20
times. Just like this one point during
01:01:22
the week is kind of your time to go
01:01:24
through it. And so I think like
01:01:25
scheduling that can make it feel less
01:01:27
scary and more intentional.
01:01:29
>> Yeah, that that makes sense. I want to
01:01:31
go back to that volatility versus
01:01:33
certainty topic again cuz I'm I'm
01:01:35
thinking to myself like volatility is
01:01:37
both this challenging thing that we all
01:01:39
have to deal with when it comes to
01:01:40
markets going up and down, our accounts
01:01:42
going up and down, checking our accounts
01:01:43
too much maybe and seeing them going up
01:01:45
and down. But at the same time, a
01:01:47
investment strategy with zero volatility
01:01:51
is probably either too good to be true
01:01:54
or there's simply no return, right?
01:01:56
There's no risk involved and therefore
01:01:57
there's no return. So, how can someone
01:01:59
and again I tend to think through the
01:02:01
the eyes of a retiree, but how can
01:02:03
someone kind of reframe their
01:02:05
relationship with volatility, not to see
01:02:07
it as this purely negative thing,
01:02:09
because I do think it has a negative
01:02:10
connotation, but instead to maybe say,
01:02:12
well, it's two sides of the coin, both
01:02:14
good and bad. It comes down to what
01:02:17
you're comfortable with obviously, but
01:02:18
also like what your goals are and what
01:02:20
you want your money to do. And so
01:02:22
obviously if you are a pre-retiree,
01:02:24
you're in a very different stage of life
01:02:26
than someone who just graduated college
01:02:27
and is starting the workforce. So I
01:02:29
think just like getting a really good
01:02:31
understanding of where you're at in
01:02:33
life, what you want your money to do for
01:02:35
you. There's all the kind of basic
01:02:37
advice like make sure everything is
01:02:39
diversified, pay attention to like
01:02:42
expense ratios, things like that just to
01:02:43
kind of keep more of your money in your
01:02:45
pocket, but it is really just kind of
01:02:48
going back to this level of okay, there
01:02:51
are going to be things in my life and my
01:02:53
portfolio that are uncertain, but they
01:02:55
could have those kind of higher returns.
01:02:57
And I tend to believe that building
01:03:01
wealth is unsexy a lot of the time and
01:03:05
slow and boring. And that's good. That's
01:03:08
the kind of lack of volatility that you
01:03:10
should be looking for is those kind of
01:03:12
tried andrue things that
01:03:14
>> you almost set it and forget it. Again,
01:03:17
well, one that removes a lot of the
01:03:18
decision-m out of your investments, but
01:03:21
is just also easy or cognitively to deal
01:03:24
with. This goes back to like in today's
01:03:26
world, I feel like so much of what we
01:03:28
see pushed online is these like get rich
01:03:30
quick overnight, potentially high
01:03:33
reward, but very high risk. And again,
01:03:35
social media rewards those people that
01:03:37
are like making a million dollars
01:03:39
overnight, but they're not amplifying
01:03:41
the stories of people losing all their
01:03:42
money as well. So, I think anything that
01:03:46
has been vetted, tested, and is tried
01:03:51
and true is what I always stick to. And
01:03:53
again, that makes me feel comfortable
01:03:54
with the volatility.
01:03:56
>> The title here, personal finance for
01:03:57
long-term investors. Pretty boring
01:03:59
title. The other option that I was
01:04:00
noodling around in my head was uh don't
01:04:02
be an idiot and get really rich really
01:04:04
quick like me podcast, but that one just
01:04:07
didn't seem to work for my brand very
01:04:08
well. No, I'm just kidding. Uh I want to
01:04:10
give a shout out to all the DIY
01:04:12
investors. A really big portion of my
01:04:14
audience are DIY investors. And
01:04:16
something that just through
01:04:17
conversations like kind of emails back
01:04:18
and forth with some of my audience, I
01:04:20
know there can be one of the one of the
01:04:22
kind of psychological or anxietyinducing
01:04:25
feelings is that hey all the good things
01:04:27
that might happen in my financial future
01:04:29
are on my shoulders, but also all the
01:04:31
bad things or mistakes that might happen
01:04:34
in my financial future, they're also on
01:04:36
my shoulders. So I I'm just thinking to
01:04:38
myself, any tips for the people out
01:04:39
there who just whether it's in finances
01:04:41
or in some other area of life, they they
01:04:43
choose to DIY things and therefore, you
01:04:46
know, they kind of have to live with all
01:04:47
the consequences, good or bad, and that
01:04:50
in itself can be anxietyinducing. Any
01:04:52
thoughts on that?
01:04:53
>> Yeah, and and I'll start by saying
01:04:55
there's nothing inherently wrong with
01:04:56
DIY investing. I think there's actually
01:04:59
like a lot of benefit for some people.
01:05:01
For example, like I'm someone who likes
01:05:03
to feel like I have a lot of control
01:05:04
over my finances. And if you're that
01:05:06
type of person, I think DIY investing is
01:05:08
is great. But that being said, I think
01:05:11
what happens, I mean, with any sort of
01:05:13
money decision, we feel we internalize
01:05:15
so much of it and we have a tendency to
01:05:18
take ownership over the wins and then
01:05:21
also feel bad about the losses when
01:05:22
really it's important to be aware of
01:05:24
just all the forces. And I write about
01:05:26
this a lot in my newsletter, all of the
01:05:27
external forces that are happening
01:05:29
around you. You know, there's obviously
01:05:30
a lot of internal work you can do to
01:05:31
understand yourself and your biases, but
01:05:33
there's also so much happening around
01:05:36
us. I mean, I always tell people there
01:05:38
are companies spending millions and
01:05:40
millions of dollars to get you to spend
01:05:42
your money on them. And you alone as one
01:05:45
person with one brain, it is very hard
01:05:48
to work against these companies that
01:05:50
again are spending millions of dollars
01:05:52
to kind of psychologically manipulate
01:05:55
you in a certain direction. So, have a
01:05:57
little grace on yourself. again if I'm
01:05:59
assuming you know if you are someone
01:06:00
that are is DIY investing you have a lot
01:06:04
of deep knowledge of investing and kind
01:06:06
of the basics of the blueprint for
01:06:08
success I'll say so as long as you have
01:06:10
that foundation and you are building on
01:06:12
that I think you should have a little
01:06:14
self-compassion for things that are
01:06:17
often outside of your control if you
01:06:19
take like the greatest investors of our
01:06:21
time like Warren Buffett all that they
01:06:24
all understood you know one thing which
01:06:26
is that successful investing successful
01:06:28
Long-term investing is so much more
01:06:30
about managing yourself than actually
01:06:33
managing your portfolio. Understanding
01:06:35
like compound interest and
01:06:37
diversification. It is pretty basic to
01:06:39
understand, but the psychology of like
01:06:41
patience and managing your emotions is
01:06:44
what is so difficult and I think what
01:06:46
separates great investors from not great
01:06:49
investors. And so I think when you are
01:06:51
able to master the psychology behind
01:06:53
that, the math sort of, you know, takes
01:06:55
care of itself.
01:06:56
>> Awesome. Yeah. I I think of that word
01:06:58
temperament that Warren Buffett uses a
01:07:00
lot in his writings. And speaking of
01:07:02
writings, I know Hannah, you write a
01:07:04
newsletter and I think that's kind of
01:07:05
your your right now this big project
01:07:07
that you're working on that's really
01:07:08
growing and and a great way for people
01:07:09
to hear more, read more of what you have
01:07:11
to say. So, can you tell us a little bit
01:07:13
more about that newsletter and how our
01:07:14
listeners can can go find your work?
01:07:16
>> Yes. So, I have a Substack called Your
01:07:18
Brain on Money and it I have lots of
01:07:21
content about money psychology, but I
01:07:23
cover kind of what's happening in the
01:07:25
news and then I also do kind of deep
01:07:26
dives about money psychology in the
01:07:29
context of cultural and social issues
01:07:31
and really just try to unpack why we
01:07:33
make the money decisions that we make.
01:07:35
So, if you're interested in that, you
01:07:36
should definitely subscribe. It's on
01:07:37
Substack.
01:07:38
>> Awesome. It's a great newsletter and we
01:07:40
will throw the link in the show notes.
01:07:41
Listeners, Hannah Horvath, thank you for
01:07:43
joining us today on personal finance for
01:07:45
long-term investors. Thank you.
01:07:47
>> Thanks for tuning in to this episode of
01:07:49
Personal Finance for Long-Term
01:07:50
Investors. If you have a question for
01:07:52
Jesse to answer on a future episode,
01:07:54
send him an email over at his blog, The
01:07:57
Bestinest. His email address is
01:07:59
jessevestinterest.blog.
01:08:01
Again, that's jessevestinterest.blog.
01:08:05
Did you enjoy the show? Subscribe, rate,
01:08:07
and review the podcast wherever you
01:08:09
listen. This helps others find the show
01:08:11
and invest in knowledge themselves, and
01:08:14
we really appreciate it. We'll catch you
01:08:16
on the next episode of Personal Finance
01:08:18
for Long-Term Investors. Personal
01:08:20
Finance for Long-Term Investors is a
01:08:22
personal podcast meant for education and
01:08:25
entertainment. It should not be taken as
01:08:27
financial advice and it's not
01:08:28
prescriptive of your financial
01:08:30
situation.
