Behavioral Finance with Daniel Folkinshteyn
Steve: Hi, my name is Steve Boorstein and welcome to the personal finance CEO podcast. I’m joined today with Daniel Folkinshteyn, who is a professor of finance at Rowan university. His teaching interests include personal finance, financial markets, and behavioral finance. He teaches undergraduate and master level courses. Prior to joining Rowan university in 2011, he had taught undergraduate finance at Temple university. Welcome Daniel.
Daniel: Thank you, Steve. It’s a pleasure to be here. I always enjoy talking about personal finance and human behavior, and I appreciate this opportunity to have this fun chat with you.
Steve: Great. Well, [00:01:00] I’m excited to have you here because behavioral finance to me has always been an area of interest and it’s not talked about a lot, but I, I think that it’s something that’s extremely important for people to understand.
Daniel: Indeed, yeah, I mean, it’s not really new in as much as there has been writing and research about human behavior for a while. And, uh, academic studies as we know them today, some of them actually like cropped up in the thirties and forties, just describing human utility curves and what people prefer and trying to see if economic theory is sensible.
Uh, but then, like,, in the fifties, sixties and seventies, gradually people started figuring out that human behavior has certain regularities and predictabilities. So, Even though theory says this is the rational thing to do, a lot of times people make predictable mistakes, right? It’s not just everybody’s doing random things. And so then [00:02:00] literature really took off from the seventies, trying to describe all the different ways in which people are behaving in quote unquote irrational ways.Um,
Steve: Biases, in other words.
Daniel: Right, and uh, these predictable ways are called cognitive biases,
right? And so a lot of times when you hear about Talk about behavioral finance, right? You’ll hear about, you know, the overconfidence bias or the status quo bias or X, Y, and Z bias, right? And those are the particular ways that have been classified and identified. So yeah, it’s now there’s like a whole uh, Uh, I guess systematic literature describing and categorizing these different biases and trying to figure out like why they’re there and how they are interrelated and under which conditions they might actually be helpful, right? Because sometimes At least I guess in the early days people said, OMG, why are people so stupid?
[00:03:00]
Daniel: Uh, but, uh, it actually turns out that a lot of these things can be helpful in a lot of cases, uh, by. letting you not invest that much effort in really analyzing the situation and building a whole encompassing model and just be like, Oh, I see this pattern.
Yeah, I’m going to do this.
Steve: Yeah, now you mentioned some of those biases. You had mentioned uh, status quo bias and framing effect and things like that. Can you give us some examples of those biases?
Daniel: Sure. Yeah. So like one of the commonly described biases in the context of investor behavior is called overconfidence bias. And that is where people have an inflated impression of their own abilities to make good decisions.
In the context of investment in particular, right? If somebody says, Oh, hey, I have this hot stock tip, ABC pharmaceuticals is about to do X, Y, and Z, right?
A lot of times people say, Oh, sure. I’ll log into my broker and buy a hundred [00:04:00] shares right now. Because you’re like, Oh, you know, I’m confident in my ability to receive this private information and act on it.
And you don’t really spend time to really dig into the idea and see if it’s worth your time,
Steve: There’s the gambler’s fallacy or the gambler’s bias. Does that fit into the behavioral finance bias? Yeah.
Daniel: Oh, yes, absolutely. Right. So the gambler’s fallacy is when if a certain thing happens for a while, you think it’s going to revert.
In the context of gambling, right, if the roulette wheel lands on black five times in a row people think that it’s due for a red, and so they’re going to like bet on red in the context of investment, you know, if the stock goes down five days in a row, you would say, oh, it’s due to turn around, so I’m going to buy some, right?
Or if it goes up five times in a year, it’s due to turn around, I’m going to sell it.
Steve: Or if it happened before and you won, that makes the impression on your mind that, if it happens again, then it’s a [00:05:00] trend or a pattern.
Daniel: Right. So it is perceiving patterns where patterns are not really there necessarily
in the context Of gambling. Of course, we can very well characterize the probabilities of events and we know that they’re supposed to be independent, right? So if you throw a coin five times in a row in its heads, it doesn’t mean it’s more likely to be tails next time just to even things out.
Steve: You always have the 50 percent chance.
Daniel: Right. Assuming it’s a fair coin. Of course, if you throw it 10 times and it’s still heads, you might start suspect maybe the coin, there’s something wrong with the coin.
Sometimes you have to step back and, reevaluate your estimates of what the probabilities actually are. But , in the context of investments it’s not necessarily the case that , serial returns have no correlation or anything, but in the context of a relatively efficient market. It is not easy to just look at it and be like, Oh yes, I can see the pattern. I’m going to trade on it.
Obviously this is a great idea because markets are very competitive and [00:06:00] anything that is obvious. And actually profitable and has alpha has already been taken advantage of by the professionals who spend their entire day analyzing these things. And they have armies of quantitative analysts and computer models trying to suss out what is actually a pattern and what is just random noise.
Steve: It’s already priced into the market most of the inefficiencies
Daniel: Yeah. I mean, I like to make this analogy. Of uh, the stock market being like a flea market.
But this flea market has been operating for decades already. So if you’re showing up in the early morning and you’re thinking, I’m going to grab all the best deals before everybody else shows up, right.
And like, I’m going to find the Monet priced at 10 because nobody has realized that it’s an actual historic painting. That’s not going to happen. Cause the market has been operating for years and everybody’s already picked everything over.
And so you’re not going to show up and suddenly find a great deal.
Steve: But being [00:07:00] new you think you’re smarter than everyone else because you haven’t operated in that
Daniel: Yeah, exactly. You’re showing up and this is a new to you and you’re thinking, ah, I’m going to like, look for great deals, but all the great deals already gone.
Pretty much.
Steve: Give us some examples in everyday life on a behavioral finance standpoint that people make mistakes in their personal finance.
Daniel: Following on to this, right, you show up and you think, oh this hot new stock is going to IPO. I’m going to buy some shares, right? And you’re thinking, I can spot this great deal because I’m on Reddit every day. And so I know Reddit. And so they’re going to IPO. I’m going to buy some shares, right?
If you look at it historically, most IPOs actually underperform in the year or two following the IPO. Even though a few of them do get like a big first day returns or first month returns or whatever, right? On average, buying an IPO and sitting on it for a little bit is a bad idea. ,
Steve: If you purchase an IPO, that there’s studies that show that [00:08:00] six months after the IPO, the price is often back at what it was at the IPO,
So when it was first launched, so the stock goes all the way up because everybody’s interested and then it settles back down again.
Daniel: Yeah. I mean, there is a, I mean, IPOs are a very hot study topic. There’s been a lot of studies to see, you know, how they behave and all of that.
But the overall outtake is that you can’t expect to make extra money by just buying, IPOs because, you know, again, on average, there is no, no free deals to be had, even though the market for that particular stock is new, the market for all kinds of stocks is the decades old flea market. So you’re not going to find a great deal.
Steve: Where can you get an edge in the market then? So if it’s not purchasing an IPO or, you know, the next hot stock, would you say that it’s in trying to predict an allocation or would you say that, you know, just buy the [00:09:00] S and P 500, nothing else. And just kind of sit there forever.
Daniel: so, uh, personally, I’m a big fan of John Bogle’s indexing philosophy. He’s the guy who founded Vanguard. And there is you know, this booglehead philosophy where you just index and chill, right? And that’s kind of the edge, right? In finance, I think there is only like, there’s very few free lunches out there.
One free lunch is diversification, right? If you don’t put all your eggs in one basket you buy a bunch of different things. Right. Then you’re going to kind of cancel out a bunch of the individual and do some reducing gratic risks and you’re going to get a pretty decent average return. And the other you know, secret edge is to control your costs, right?
Which is where the index funds come in. A lot of times you know, the investment industry is like, Oh, like I’m going to try to buy and sell a bunch of stuff and try to outperform the average market performance. Right. But you pay a lot of costs for that, right?
There are trading fees. There [00:10:00] is, you know, trading slippage. There are management fees if you’re paying somebody. What studies have realized is that a lot of times just buying a really low cost index funds cost in terms of the management fees, not in terms of the price of a share, right?
And just let it drip for a few decades.
You’re going to outperform. 99 percent of people who are trying to buy and sell and trade and try to, , outperform the market,
Steve: When we build portfolios, we use a lot of the index funds. So we use the Vanguard S&P 500 index is usually a part of our mix in the portfolios. And we use the MSCI EAFE, so we still have to manage the proportion of each index in the portfolio, for a person’s given level of risk,
Steve: I don’t know if you have a opinion , but the only area that I see managers sometimes having an edge is in bond funds, because unlike [00:11:00] stocks, there’s only a certain amount of any particular bond out there. so what I see is, is that in many cases, active bond managers can sometimes outperform a bond index because of the quantities that can be bought and where they can buy them.
Daniel: That is I mean, the bond market is certainly more fragmented. Right. But I think in the recent couple of decades, it has also gotten a lot more efficient than it used to be.
So, while it may be the case that it’s maybe a little more possible to get alpha in an active bond management situation, personally, I would still be like, okay, maybe there is, A five or 10% chance of beating the bond index and relative to the stock market, whereas a 1% chance.
But would they want to bank on that 10% chance or do I just want to go with a 90% chance of getting my index returns?
Steve: What do you think about chart patterns, my [00:12:00] feeling is that chart patterns are almost.
Self fulfilling prophecies, information is almost instantaneous today, but it’s almost as if when a stock gets to a certain point up or down and it’s making a pattern, it’s almost a self fulfilling prophecy because so many investors act at those inflection points that Maybe there’s an efficiency trying to buy off of a bounce on the bottom or sell off of a pattern that reaches the top, at least short term.
Daniel: I mean, that kind of game certainly seems fun to play. Right. For like for investors, right. It’s I can look at this pattern,
I can kind of see it and try to make money on it. I think there have been you know, quantitative studies that try to see if there is an edge to certain technical analysis techniques, and they haven’t really found anything that would actually be, on [00:13:00] average, a positive alpha strategy because I mean, out of all the data out there, historical price data is the most available out there.
And so if you’re running, your hedge fund or your prop trading desk somewhere, you’re going to be taken into account historical price data, right? That’s just like, you’re not going to ignore it because it’s just, it’s there. Everybody knows what it is. So I would just be. Super surprised if there is any alpha to be had there,
they do, you know, it’s sort of kind of a self fulfilling prophecy, which makes sense intuitively. If everybody believes it, everybody’s going to act on it. Uh, but uh, as investors interact with the market, they’re going to act on it earlier and earlier.
All right, because you don’t want to be late and so eventually it will get smoothed out to where your time is just not worth it.
Because sometimes you win some, sometimes you lose some and like if you look at the chart of what happened with Bitcoin or the S and [00:14:00] P 500 in
previous times, you’ll notice sometimes, yeah, like it reaches a high and like there is a bit of a stop or a pullback before it goes on. Sometimes it just blows right through it and keeps going.
And so the time that you wait for a pullback and buy, you remember, ah, I made the smart decision and I saved myself, 5 percent or 10 percent or whatever. But the times that you waited and then blew right past it. And then you were, You missed. it. You don’t remember. Ah, I really messed up that time. We have a kind of selective memory of what we do. We remember more when we took action rather than when we didn’t.
Steve: Right.
Daniel: If we tend to have this sort of good self image and overconfidence, we tend to remember when we succeeded versus when we failed.
And so one of the suggestions to overcome this bias is to keep a log of your trade and trade ideas and see how they have performed and try to learn from that [00:15:00] rather than just, Oh, I remember this one time. I did that and it worked. So I’m going to do it again. Kind of
Steve: That’s a great point. And yeah, and I always recommend to anyone who wants to even casually trade the market record every trade that you’ve done at the very least, it’ll give you insight as to what worked and what didn’t. And if you do enough trades, maybe, it points to a better method for them to buy or sell simply because they’re overcoming a bias,
Daniel: there are a lot of other things that affect more of our like daily life and our savings and spending behaviors as well that can have a really large long term impact on how well off financially you are in the future.
Steve: In the course of general financial planning, so outside of the investing part, what are some of the cognitive or behavioral biases?
Daniel: The first one I’ll start with is called the present bias or hyperbolic discounting. That’s where we overvalue [00:16:00] the importance of near term things relative to long term things, right? In particular, this presents a problem when we’re thinking, oh, I really want to buy, I don’t know, a Tesla. And you feel like this is super important. It will make you super happy. Maybe at the expense of putting away an extra 10, 000 into your retirement portfolio, and so what this kind of bias tends to do is it tends to encourage short term instant gratification. In favor of longer term planning.
And so what we find a lot is that maybe young people get their first job, they start like buying things, upgrading their lifestyle. And they don’t really think too hard about, well, maybe I should uh, you know, put some money into the S and P 500 index for the next 40 years right now.
And so you find probably, especially in your practice that you have people who show up and they haven’t really saved a [00:17:00] lot. Until they’re like 40 and 50, and now they’re like, oh, my retirement is only 10, 20 years away. Now I have to think about it.
Right?
Steve: Yeah, there’s this magic number of 55. People graduate there in their twenties and their thought is paying off some debt, but not saving, and then they get into the thirties and rather than plan as they get into the thirties and their forties they get married. They have kids trying to pay off the house. Kids have to go to, private school or, , soccer or all the different things that they spend money on. They’re not thinking about the longterm needs. They push it off. So it’s the idea of, you know what?
I’ve got time. And then all of a sudden this magic time hits right around 55 where people look and go, you know what? In the next 10 years, I could be retired. Do I have enough? Have I saved? And they start to come to the realization that all those Previous decades that they should have been saving now they may have to play catch up and that’s not [00:18:00] everyone, but that’s a significant number of people that have that, oh crap moment, you know,
Daniel: Yeah. Yeah, for sure. And I mean, if you look at the nature of exponential growth and compounding there is like a very stark example. Of how important it is because somebody who saves, , 5, 000 a year for 10 years, starting when they’re at 20 and then doesn’t save anything.
And just puts it in the, say S and P 500 index and sit,
let it sit. It’s going to have more money at the end than somebody who saves starting from 30 until 60, because those first few dollars will get an extra decade of compounding. And you’re going to be making more money on your. Previous returns than you would just from putting money in.
So starting to save early is very important as like you’re aware of, but a lot of people it’s probably kind of a bias. We tend to linearly extrapolate rather than exponentially extrapolate.
So if you ask [00:19:00] people, if you put a dollar in a 10%, how much it would be in, you know, 30 years, they will usually dramatically underestimate how much it will be. Cause they’ll think, okay, if they get 10 cents in the first year and like another 10 cents or so in the next year, and like, they don’t see the exponential
Steve: see what they call the Logarithmic change. They see the linear change where they feel like it’s a linear change when in fact it’s much more powerful that law of compounding and those types of principles.
Absolutely.
Daniel: Yeah. So that’s like, one thing that I think is valuable when I talk to students for just entering their twenties is to remind them, like, it’s important to set yourself up for future financial success by prioritizing your savings
because every dollar of savings right now, after you graduate college is going to have so much more leverage on your eventual net worth. Then the dollar of savings when you’re 50,
That’s you know, the hyperbolic discounting situation. Another one is status [00:20:00] quo bias which is kind of related, I guess, to what I would call decision fatigue. The idea is that, like, every time you think about doing something, It’s always easy to just be like, I’m not going to do anything.
I’m just going to sit and how things are already. That’s status quo bias. You don’t want to make any changes.
And so one of the really smart, government policies that encouraged people to take a, you know, kind of overcome it is this idea of an automatic 401k contribution, right?
Because if you make, if you change the default to be like, yes, I’m going to save 10 percent of my salary into the 401k. Then instead of thinking every month, do I want to put some money into my 401k, it just happens automatically.
And then you’re like, do I want to not do that? All right. You’re going to err on the side of staying with the status quo and actually saving.
So like the idea is to set up defaults in your life.
such that if you don’t take any action, you’re going to do the [00:21:00] right thing,
Right. If Your default is.
I’m just going to take my money and do things with it. And if anything is left over at the end, maybe I’ll save it. Then you’ll end up not saving anything.
All right. If your default is at the end of the beginning of the month, I’m going to put an extra 500 into my brokerage account and put it into the S& P 500 index, then somehow by the end of the month, you will have enough money to do whatever things you were doing. And you also save 500,
Steve: So if you create a plan and you make it as automatic as possible, then by default, you’re really taking out the cognitive biases and the behavioral issues that you would face
Daniel: yes, exactly. So you think you sit around, you make a plan, you make it automatic, Right. And that way, instead of. having to make the decision every month, how much am I going to invest? Right? The decision is taken out. You don’t want to have to make decisions over and over again because decisions are taxing.
They’re hard. We kind of shrink away from making [00:22:00] decisions. So if you set up the defaults in such a way that they’re good for you, then your status quo bias is going to be working for you rather than against you. Right?
One common bias is called mental accounting. Well, you’re putting money into different buckets rather than thinking of your overall portfolio or your overall money flows. And one of the common examples is when you get your tax refund people say, oh, this is like free money.
I’m going to go and like spend it on fun, frivolous things.
But in reality, like that money is the same as any other money. And if you are. Not up to your desired retirement savings goal. Your first thing should be to like maybe save it, but free money is kind of in a separate bucket. So you account for it in a different way from all the other money.
Steve: So that doesn’t have anything to do or does it with the idea of budgeting.
Daniel: I mean, it certainly does, right. Because let’s say you budget, I don’t [00:23:00] know, 500 for eating out this month. And then you’re like, it’s come to the end of the month and you still have 300 left in this bucket. What do people like a lot of people like, well, I have this extra money.
I’m just going to go and eat out some more because I can.
But really this is the same as any other money. And if you happen to have, you know, not eaten out as much as you thought in, and you know, you’re still working towards your uh, net worth and savings goal. The best bet is to take that money and put it in your S and P 500 index or whatever mix of stocks and bonds that you might have. All right.
So it’s, but this mental accounting, like people think, Oh, this money is earmarked for fun, so therefore I must do whatever with it.
Steve: Interesting. You say that. So when, when we do financial planning for clients, there’s two ways to look at what we call unspent cashflow, you either want to save those cash flows or you want to spend those [00:24:00] cash flows if at the end of their, , monthly or yearly budget, they’ve got an extra, , 500 or 6, 000 at the end of the year the best idea is to save the cash flows.
To put it towards, you know, the S and P 500 fund. But in reality, what happens with most people is they can’t follow that. They wind up spending the cashflow, that’s generally a detrimental. Behavioral bias they’re just doing the wrong thing depending on the client you have to enjoy life today , well as, save for later but knowledge is power with the choice, right?
Daniel: Behavioral irregularities are something that a lot of people are subject to, so I think it is helpful for people to know what they are so they can think about things more I guess, rigorously, in a way. But there’s another really cool bias that’s called self exceptionality bias. And that is you think, well, all those other people have those biases, but I certainly [00:25:00] don’t.
Steve: It’s called not looking in the mirror.
Daniel: And so it’s very important to realize that yes, you know, these kind of things are about everyone, including you. So that you don’t fall into this trap of being like, well, I’m better than those people. I don’t have to worry about being overconfident. Or I don’t have to worry about making good decisions every month.
So, I’ll just keep doing my thing ’cause I know what I’m doing.
Steve: I guess my question is, if you go through life, and you know what these biases are, you can kind of identify them. But to what extent can someone actually. Other than automating things like investing and stuff like that, how easy is it to actually overcome the bias?
Like I, you know,, I recognize that I do some of these things right. and I think most, most people would recognize that they’re subject to doing a bunch of those things. But even though we recognize it, you know, are there tips and tricks or is it very difficult to overcome a lot of these biases, [00:26:00] but recognizing them helps kind of.
I guess Mute their effect.
Daniel: That’s a great question. Unfortunately knowing about the biases. Does not really reduce the effect of the biases on you without taking specific actions, right.
So a lot of times you’re like, ah, now that I know about this bias, I’m not gonna let it rule my life anymore
Steve: it doesn’t happen.
Daniel: No, not at all and so there are certainly some things that you can do to help yourself Right? Uh, understanding with it. there are biases, so you don’t uh, you know, you kind of take a step back and double check decisions. At least the important ones we talked earlier about in the context of if you want to actively trade, you have to keep like a trade log and idea
book and have an have the data to back up your thinking.
Okay. We talked about setting good defaults for yourself. So your status quo bias, it doesn’t act against you. Um, [00:27:00] uh, you Mentioned something about uh, like in your practice, like you want to have a plan for what you’re trying to achieve. So whenever you’re thinking, should I do this or that? Right. You have kind of a, I guess the guiding star there saying how does this fit with my plan?
Right. And sometimes if you’re okay and you’re on track with your plan, you can like, yeah, I’m going to enjoy life right now and like go on this vacation or take a day off or whatever. But if you’re like, wait a second, I’m behind my plan. And like, if I do this right now, I’ll be an even further hole,
That’ll maybe motivate you to think more longterm if you have that structure in place.
Steve: To me, there’s nothing, you know, there’s nothing magical about a plan. What a plan does, though, is it puts something in writing that you can measure, right? So you can tell, what you’re saying, which is “Am I off track? Am I on track? And if I’m off track, what do I do to get back on track?”
But if you don’t have a way to measure things, whether [00:28:00] it’s your investment game plan, or whether it’s your financial plan or your state plan or your tax strategy, to me, if you can’t measure it, there’s, it didn’t really happen, right? There’s no way to really achieve it with certainty because you have nothing to measure against as time goes on.
Daniel: the main thing is to avoid making really big mistakes.
We’re All going to make little mistakes here and there. We’re going to make a lot of them.
But if you avoid doing something really bad, it’s more important than trying to do something really good.
Steve: Recognizing it early, right? So like you were saying with the investment compounding, knowing that you should invest early is way more helpful than trying to catch up when you’re 55 or 60 and saying, Hey, I’m going to retire in five or seven years. Do I have enough money?
Daniel: Yeah, for sure. And, there are some other, like, big mistakes that people make. One of them also stems kind of from overconfidence. A lot of times, people end up with a really large, concentrated position [00:29:00] in a particular security. Sometimes it’s from their employer stock compensation. Sometimes they were like, Oh, I really believe in Tesla or Nvidia and buy them and like end up exploding. Uh, And then like, well, I made this great decision. I’m confident. This is still a great stock or whatever. So they ended up having 90 percent of their net worth and some particular, you know, some particular stock. And a lot of people end up losing a lot when. But you know, Mostly when it comes back down, like during the. com boom, a lot of people ended up having some like millions of dollars of net worth and paper money in the stock of their company. And then of course, when things crashed, suddenly they you know, suddenly they ended up not having enough money.
Steve: It’s funny. I had first started in the business back in 1999.
Daniel: Ah,
Steve: And so I lived through that. com bubble. And at that point in time, after everything had happened in 2001, there was a story [00:30:00] and I think it was the New York times of, was a huge technology company at the time called Lucent, which I think was a break off of like AT& T.
I can’t remember exactly. And people who had worked at Lucent had literally, you know, your regular staff at Lucent became millionaires. And Lucent during the dot com bubble went from over 50 a share down to two.
And the article ended with all these people, interviews of people who had retired early only to have to go back to work because, their millions of dollars became a couple hundred thousand dollars.
So you have really uh, important to, to understand that things like concentrated stock positions, you should have never had that concentrated a position, but Hey, it’s getting me where I need to go and I’m going to be able to retire early and I’ll keep that stock forever.
And I’ll turn, you know, millions into tens of millions, right?
Daniel: It’s [00:31:00] important to take your chips off the table.
when uh, you know, when the time is right,
Steve: Yeah. Rebalance. We call that.
Daniel: yes, you know, guys that take advantage of that free lunch of diversification for sure.
Steve: So from a standpoint of behavioral finance, From someone who teaches it, , what benefits would you see a financial planner have or potentially not have?
Daniel: A lot of it is the educational component for sure, right?
Of times people need like another human being to coach them through what they need to do.
Because people have lives and priorities and like they’re focusing on different things. And if they don’t have somebody to say, Hey, you know, I think it’s pretty important for us to set up regular contributions to your brokerage account, or double check that you’re maxing out your employer matching things like that. They’ll end up getting caught up in the daily life and never doing it because status quo bias, everything is fine. So I guess I don’t really need to do anything, right?
So the educational component is very important. Sometimes a sort of [00:32:00] psychological component as well, .
Again, you could learn, like, read a book about capital markets history and things like that.
But, you know, when there is a financial crisis and the market is down 30%, It is very intuitive to be like, OMG, I must do something. And so you find a lot of people end up like selling out at the bottom and then sitting out to the recovery because they haven’t
educated themselves about what happens in the market
with the recessions. So an advisor can help them avoid making that big mistake of selling out at the bottom.
Steve: I get into conversations about, , what’s the value of advisor? And I say, look if you have a passion for understanding finance you want to learn financial planning techniques and you want to learn tax strategy and.
estate planning, you know, missteps and what you need to do to get your estate plan in a perfect order. And, you want to look at risk management and how much insurance you need and what kind of insurances and things like that, then I think someone could do that. I mean, [00:33:00] if they treat it like they, they do any other passion or, hobby that they just want to do all the time, but for everyone else, I think that, Having some guidance, some coaching, education, and someone to make sure that, like a coach you’re getting to the point progressively in what you’re doing makes a lot of sense.
So I think the less complicated your life and the less assets you have, probably the less coaching you need. And then, the more money you have, the more complex your life, the more complex your goals, the more coaching you need.
Daniel: You know, personal finance books are like a big big area right now, one of my favorites is psychology of money by Morgan Housel. He kind of talks a lot about human behavioral biases and how people behave with money and how to avoid making the big mistakes from the psychological standpoint. Another one is a simple path to wealth by JL Collins.
He really distills down [00:34:00] the sort of ideas of academic finance regarding market efficiency and portfolio compounding, all of that. He just says like, here are the big ideas that you really need to focus on with saving your money. And, you know, TLDR, it means savorily plow it into index funds and don’t look at it for a few decades.
Another book for those who really like to see the data behind the big lessons. I, because a lot of times, you know, you read something or so you just do this, right? And some people say, okay, and some people say, wait a second, like, I’m not sure I really buy it. Right. And so William Bernstein’s book, the four pillars of investments kind of goes through a lot of the capital markets history and some of the findings and research and proves to you in a way that like, Hey. This is really what you should do, and again, of course, the outtake is put your money in low cost index funds of whatever allocation you choose. [00:35:00] And, don’t try to time the market, just let it sit there. And history suggests you’ll do well, but it has a lot of really interesting anecdotes from You know, history of financial markets. It shows a bunch of like data and charts how the markets have performed, during and after recessions and things like that to really drive home the point that you know, You shouldn’t just like, follow your emotions and you know, do whatever, whatever is happening.
So yeah, those three books, I think anybody who reads them would be pretty well equipped to not make any really big mistakes as far as these things go.
But you know, it’s still always helpful to run things by other people and, uh, get some advice and get like a second opinion. Because it’s easy to get caught up in something and kind of get into your own brain. It’s nice to get a third party perspective.
Steve: Great! Some important lessons. Thanks for joining us today Daniel.
IMPORTANT, PLEASE READ! Yes we are financial planners, but unless you are our client, we are not YOUR financial planner! The information presented in this podcast is intended for informational and educational purposes only and does not purport to be investment advice or an offer of investment advice, an offer to buy or sell any security or a recommendation of any investment strategy or course of action. Any graphs, charts, or calculations used are for illustrative purposes only. RockCrest is a state registered investment adviser in New Jersey and Pennsylvania, principally located in Somers Point, NJ. Registration does not imply a certain level of skill or training. Opinions of Steven Boorstein, Aiden Boorstein and guests on this podcast do not necessarily reflect the opinions of RockCrest Financial LLC, and are independent of RockCrest’s opinions and practices. Investments discussed are not a recommendation or solicitation to purchase any securities mentioned.