• Nate Baim, MBA, CFP®

Ways to Avoid Psychological Traps in Investing


Enjoy this week's edition of the Planner's Beta


Beta (n) - climber's jargon that designates information about a climb This digest's purpose is to share observations, ideas, and treasures found this week which you may also find insightful. Sharing does not mean it's an endorsement. I am endorsing the pursuit of knowledge and exploration.





Four Ways to Avoid Psychological Traps in Investing


With some planning, we can avoid many investing-related situations that would lead to disadvantageous trading.


Even experts have difficulty staying the course with respect to their investment strategy during an upheaval in the stock market. Why? Volatility in the market can lead us to be in a heightened emotional or reactive state, leading to a host of not-so-great decisions about our investments (check your level of emotionality when it comes to investing here). This article explains why we often feel the need to make an investment change during times of crisis: “The desire to act in a crisis is deeply embedded in our psychology. But investment behavior experts warn that this instinct is our own worst enemy when it comes to money.” To avoid certain investing mistakes, consider some of the advice given from experts in this field:


1. Limit market news. Reduce the amount of time you look at market news and movements. The less you are connected to the market changes, the less likely you are to make quick decisions about buying or selling.


2. Wait and see. Several of the experts agree that if you intend to make portfolio changes, set a period of waiting time–a day or more–before executing the trade.


3. Control something else. One of the reasons we look to make changes in our portfolio is due to feeling out of control when markets go haywire. Look for other ways to feel in control such as in your spending and saving decisions. By increasing savings during these periods, you’ll be taking control while also building and sustaining wealth.


4. Set limits before you need them. It is difficult during times of crisis or when we are in an emotional (or reactive) state to make decisions that can benefit us in the long-run. When the markets are relatively stable, set ground rules about when and if you will make changes.


This is Key to Growing Your Wealth

This Month's Financial Planning Item - Reviewing Job Satisfaction and Income

What is wealth? I would argue wealth is more than just dollars in a bank account. Wealth is when you are spending your time with the people you love and living a healthy lifestyle in the community you enjoy. And let's face the music, financial wealth is one element of achieving wealth.


Because income plays such an integral part in growing wealth, I encourage you to review your career. These are the steps to take when evaluating your income:

  • Assess Career Fit and Revisit Your Why

  • Review Current Pay

  • Evaluate Other Career Opportunities

  • Begin Developing an Action Plan if Needed

Assess Your Career Fit and Revisit Your Why

Loving your career is an essential tool for generating wealth. Each year, you should review your values and goals and ask yourself, "Is my current job helping me living my best life? Is it time for a career change? Is my financial situation ready for a new career path?" You may also take this 1-minute assessment to learn about your career fit and how your finances might impact your ability to make a move.


Review Your Current Pay

You may find you are in the correct place after assessing your career and goals, but you may still feel under-compensated for your time and talents. Fortunately, there are many resources out there to determine if your pay is competitive. The first site I encourage people to review is the Bureau of Labor Statistics website. From there, you can search your occupation and find compensation statistics for your job and location. BLS's database is a great starting point. I also encourage folks to review salary information at careeronestop.org. And finally, Glassdoor contains salary details for particular jobs. Glassdoor is excellent to see what employers pay their employees, providing you more detailed information than the government sites. From this information, you may determine if it is appropriate to ask for a raise or look for other opportunities.


Evaluate Other Career Opportunities

It is essential to keep an updated resume on hand at all times. Now is an excellent time to review and update the resume. Here is a downloadable resume template I designed for you to help format a clean and professional-looking resume.


It is always good to shop around on popular job boards like LinkedIn or Indeed. Review available openings. If you find an exciting opportunity searching the job boards but aren't confident, remember it never hurts to apply. An application is not a commitment. If you do get an interview, remember it is a two-way street; you should be evaluating them just as much as they are evaluating you. Suppose you are fortunate to have a conversation with another employer but feel the old job is still a better gig. In that case, you can always decline a new job if provided. Or, if you are still on the fence, and after careful consideration, you may use the offer as a salary negotiation point with your existing employer. Either way, having an interview every once and a while is a good thing. Interviewing is a learned skill that can atrophy with years of no use.


Begin Developing an Action Plan

You may find yourself thinking about changing jobs. Or you may be facing a new promotion. Either way, when faced with such opportunities, you should always give time to consider how best to grow your wealth and develop an action plan. In addition to taking the steps above, if you find yourself trying to answer the technical questions with a career change, be sure to review the linked checklists below.


The checklists linked below focus on reviewing the potential financial impacts of a promotion and a new job. Each list includes topics related to:

  • Cash Flow and Income

  • Employee Benefits

  • Retirement Plans and Deferred Compensation

  • Tax and Insurance Planning

With each item listed, I encourage you to consider the what-ifs of a career change (whether it be a promotion or new job) and its potential impact on your life and financial plan.


If you need independent advice on managing income, strategically planning for a career change, or determining how best to move through a job transition to align with your overall aspirations, please review the services I offer and place an introductory appointment on my calendar.


If you are a current Pursuit Planning and Investments client, securely upload any documents needing review to PreciseFP. I am happy to help proofread any resumes, conduct mock interviews, or support you with any career decisions you face. We can discuss this in our next scheduled check-in meeting, or feel free to place an appointment on my calendar.

Checklist: What Issues to Consider if Your Get a Promotion or Raise



Checklist: What Issues to Consider When Starting a New Job



Quote of the Week

"You can never plan the future by the past." - Edmund Burke

 

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Investing involves risk. Past results do not guarantee future returns. This content should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice. The performance of an index is not representative of any particular investment, as you cannot invest directly in an index.