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Unmasking Your Investment Persona: Risk Tolerance and Bias · Money In Motion with Klaas Financial

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  Speaker 2: gonna get on the air this morning six oh eight
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  Speaker 2: three two one thirteen ten. That's six oh eight three
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  Speaker 2: two one thirteen ten. And joining us this morning are
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  Speaker 2: our retirement planning professionals from Class Financial, CJ. Closs and
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  Speaker 2: Malia Quavis. We have Malia CJ's getting connected right now.
• 1:24
  Speaker 2: But Malia, how are you doing this week?
• 1:26
  Speaker 3: Doing really well? This summer is flying by?
• 1:28
  Speaker 2: What's an amazing We're already what halfway through August? Oh
• 1:31
  Speaker 2: my goodness, it goes so fast. Speaking of enjoying summer,
• 1:36
  Speaker 2: who's this guy?
• 1:37
  Speaker 1: CJ. Closs? What's up?
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  Speaker 4: Sean?
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  Speaker 1: Good morning? Good morning? How you doing? CJ? I'm doing great.
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  Speaker 4: It's uh I'm a little late, sorry everybody, but I'm
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  Speaker 4: excited to be on.
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  Speaker 1: It's great to have you along.
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  Speaker 3: Well.
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  Speaker 2: You know, you've been off the past couple of weeks
• 1:53
  Speaker 2: enjoying this summer and it's great to have you back along.
• 1:55
  Speaker 2: Of course CG and Malia. They come to us from
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  Speaker 2: Closs Financial. They love to answer your question. Six wait
• 2:00
  Speaker 2: three to two one thirteen ten. That's six so Wight
• 2:02
  Speaker 2: three two one thirteen ten gets you right on the
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  Speaker 2: air with our retirement planning professionals from Class Financial. This week,
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  Speaker 2: we're gonna talk about something that that is really important
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  Speaker 2: about making better financial decisions. We're gonna talk about the
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  Speaker 2: emotion and there are things that go into making those
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  Speaker 2: decisions and how it can be a bit of a
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  Speaker 2: struggle and some some ways to really help you get
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  Speaker 2: through making better decisions.
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  Speaker 1: I mean, you go, you know, you go to I think.
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  Speaker 2: I always feel like fast food places offer like salads
• 2:28
  Speaker 2: and things just to lure you into the into.
• 2:30
  Speaker 1: The drive through.
• 2:31
  Speaker 2: Be like, hey, we've got a sale it I'm gonna
• 2:33
  Speaker 2: make it a smart choice and I'm gonna go through
• 2:36
  Speaker 2: that drive through. You smell those fries and you're like, yeah,
• 2:38
  Speaker 2: maybe next time I'm gonna get the big mac. This time,
• 2:42
  Speaker 2: but we'll talk about some things you can do in
• 2:45
  Speaker 2: just a moment.
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  Speaker 1: Another great thing about this show is a chance to win.
• 2:48
  Speaker 2: Speaking of great fries and great burgers, a twenty five
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  Speaker 2: dollars gift card to Red Robin with the Class Quiz
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  Speaker 2: Question week. Little tip, listen close to the program because
• 2:56
  Speaker 2: most of the time, actually all the time, they answer
• 2:58
  Speaker 2: the question and answer to the Class Quiz Question week
• 3:00
  Speaker 2: comes up during the program. And speaking of the Class
• 3:03
  Speaker 2: Quiz Question Week, Mallia, let's take a look back at
• 3:05
  Speaker 2: last week's show and get a review of the question
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  Speaker 2: and answer from last week's program as well.
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  Speaker 3: Yeah. Absolutely, it sounds like Sean needs a coach for
• 3:13
  Speaker 3: every part of his life now that I'm listening, not
• 3:16
  Speaker 3: just financial. So last week we had a great conversation
• 3:20
  Speaker 3: about ESG types of investments and the question revolved around that.
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  Speaker 3: So it was a true or false question. According to
• 3:30
  Speaker 3: Global Sustainable Investment Review in twenty twenty two, there was
• 3:34
  Speaker 3: over thirty trillion dollars invested globally in ESG focused investments.
• 3:40
  Speaker 3: The correct answer Eric called first with that answer of Stowtent.
• 3:45
  Speaker 3: Eric of Stoten said, true, that is true. And for
• 3:48
  Speaker 3: those of you who don't know what I'm talking about
• 3:50
  Speaker 3: when we talk about sustainable investments, listen back to our
• 3:54
  Speaker 3: show last week and we had a really good conversation
• 3:57
  Speaker 3: kind of detailing now what you might want to know
• 4:00
  Speaker 3: about that.
• 4:00
  Speaker 2: So thanks for listening, and you can listen back to
• 4:02
  Speaker 2: that program right at Cossfinancial dot com. That's kay l
• 4:05
  Speaker 2: Aasfinancial dot com. Don't forget again with Class Quiz question.
• 4:09
  Speaker 2: A week our friends from Class Financially provided a twenty
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  Speaker 2: five dollars gift card to red Robin. Again, we'll say
• 4:13
  Speaker 2: how you can win that a little bit later on
• 4:14
  Speaker 2: the show. Today we're going to be talking about how
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  Speaker 2: you can make those better financial decisions as you deal
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  Speaker 2: with your emotions and sometimes get the better of us.
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  Speaker 2: And of course we're going to look into maybe doing
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  Speaker 2: a better job of understanding risk tolerance as investors, aren't
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  Speaker 2: we c J.
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  Speaker 4: Yeah, So this is important to know about ourselves. Even
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  Speaker 4: the most successful and rational investors sometimes experience feelings of
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  Speaker 4: anxiety with their money, which is pretty common. But risk
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  Speaker 4: tolerance refers to your ability to handle some volatility in
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  Speaker 4: your portfolio returns and is one of the most important
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  Speaker 4: considerations when building an investment portfolio or a comprehensive financial plan.
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  Speaker 4: In this context, it's more it's more concerned with like
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  Speaker 4: large negative movements. People can handle positive investments quite well,
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  Speaker 4: so again, When you think of risk tolerance, people will say,
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  Speaker 4: you know, how high do you want it to go up?
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  Speaker 4: And how high do you want it to go down?
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  Speaker 4: And I go nobody cares about how high it goes up.
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  Speaker 4: When we think of risk, we tend to think of
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  Speaker 4: the negative consequences. So risk tolerance can be influenced by
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  Speaker 4: several factors, and those factors include some of the following.
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  Speaker 4: Number one, your specific goals. Number two, your age and
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  Speaker 4: number of years until retirement. Number three the degree to
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  Speaker 4: the to which you will rely on your portfolio for income.
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  Speaker 4: Number four your absolute net worth, and then number five
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  Speaker 4: your own experience with money, both positive and negative. So
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  Speaker 4: recognize as I talk through some of those. Some of
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  Speaker 4: those are quantitative like net worth, number of years to retirement.
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  Speaker 4: Some of them are qualitative your experience with money. And
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  Speaker 4: this is what makes risk tolerance tricky. This is what
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  Speaker 4: makes investing in in public markets tricky because it can
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  Speaker 4: be hard to nail down. You can answer a risk
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  Speaker 4: tolerance questionnaire, but even that may or may not capture
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  Speaker 4: your willingness to take on risks. So, in summary, your
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  Speaker 4: risk tolerance is your ability and willingness to take investment
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  Speaker 4: risks that you are comfortable with now. Typically, older investors
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  Speaker 4: may have a lower risk tolerance, usually because they're fast
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  Speaker 4: approaching retirement or perhaps they're already retired, and these investors
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  Speaker 4: can be hurt greatly by downward market shocks, which makes
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  Speaker 4: careful financial planning essential if you're living off income from
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  Speaker 4: your investments, Whereas younger investors can generally handle more risks
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  Speaker 4: due to their longer time horizons. However, this is not
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  Speaker 4: a hard and fast rule, as your risk tolerance should
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  Speaker 4: be reflected individually. That just simply means that you could
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  Speaker 4: have an older investor who may want to be less risky,
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  Speaker 4: but maybe they've got more money than they need, or
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  Speaker 4: maybe they've been in the markets their whole life and
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  Speaker 4: so that the risk doesn't bother them. Or conversely, maybe
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  Speaker 4: you've got a younger investor who's maybe in their early thirties,
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  Speaker 4: but had a really poor experience in the markets, and
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  Speaker 4: so they just can't tolerate the thought of having, you know,
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  Speaker 4: a principal loss and some sort of stock investment. So
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  Speaker 4: while these are good generalizations, just recognize that we've said
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  Speaker 4: this on the show before. We give you rules of
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  Speaker 4: thumb and generalization because we're on the air. But rules
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  Speaker 4: of thumb and generalization stink for individual individual decision making.
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  Speaker 4: So good generalizations, but make sure to determine your own
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  Speaker 4: risk tolerance. That you are meeting and talking to a financial.
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  Speaker 2: Advisor, talking this morning with CJ. Closs and Malia Quavis.
• 7:43
  Speaker 2: They are our retirement planning professionals from Class Financial the
• 7:46
  Speaker 2: website class financial dot com. That's COSS k l aas
• 7:50
  Speaker 2: Financial dot com. And they're telephone number six so eight
• 7:53
  Speaker 2: four four two five six three seven. No charge for
• 7:55
  Speaker 2: the initial get to know you appointment at COSS Financially.
• 7:58
  Speaker 2: It will be complimentary to you again. Tell of one
• 8:00
  Speaker 2: number six oh eight four four two five six three
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  Speaker 2: seven number to get down the air this morning. Six
• 8:04
  Speaker 2: so eight three two one thirteen ten. That's six soh
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  Speaker 2: eight three two one thirteen ten. You mentioned kind of
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  Speaker 2: those generalizations. Let's kind of break down kind of those
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  Speaker 2: areas that kind of when we generalize, kind of maybe
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  Speaker 2: fit into into one of those one of those boxes.
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  Speaker 4: Yeah, So as you're working towards figuring out your own
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  Speaker 4: risk tolerance, it is good to understand some of these
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  Speaker 4: general labels and these labels you'll see on like mutual
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  Speaker 4: fund names. At times, it'll be, you know, the Vanguard
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  Speaker 4: conservative investor portfolio and the Vanguard Moderate investor or the Fidelity.
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  Speaker 4: It's people go, what do you what do you mean?
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  Speaker 4: Conservative or moderate or aggressive? And so we're just going
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  Speaker 4: to break down those general labels. So conservative investments would
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  Speaker 4: be for people with a lower than average tolerance for
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  Speaker 4: investment risk. Typically, these investors will opt for an investment
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  Speaker 4: allocation with higher shares of cash or money market funds
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  Speaker 4: or CDs or fixed annuities or heavier fixed income instruments
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  Speaker 4: like bonds in real estate. Moderate investors these are people
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  Speaker 4: with a middle of the road view of investment risks.
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  Speaker 4: These are investors that may opt for even you know,
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  Speaker 4: higher shares of riskier assets than the conservative people, but
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  Speaker 4: they still want a balance between the two. And for example,
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  Speaker 4: someone with a moderate risk tolerance might have an asset
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  Speaker 4: allocation of fifty to sixty percent stocks and you know,
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  Speaker 4: thirty to forty or thirty to fifty percent in fixed income,
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  Speaker 4: and then they might have a little bit in cash
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  Speaker 4: in money markets. And then there's this term aggressive, and
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  Speaker 4: aggressive would would fit the category of investors that are
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  Speaker 4: willing and able to tolerate higher levels of risk. Usually
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  Speaker 4: these investors have a higher concentration of stocks and sometimes
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  Speaker 4: even more speculative stocks. Now again we are simplifying these
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  Speaker 4: labels to help you understand. When maybe you go to
• 9:52
  Speaker 4: look at your four one case statement and you see
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  Speaker 4: these terms around investment options, they'll often break out investments
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  Speaker 4: in these categories of conservative, conservative, moderate, or aggressive. Now
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  Speaker 4: here's what i'd say. Number one, you have to know yourself.
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  Speaker 4: That gets into the qualitative. Know yourself. If you're going
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  Speaker 4: to lose ten percent of your four to one k
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  Speaker 4: value and panic and sell everything out, well, don't get aggressive, right,
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  Speaker 4: know yourself and be more moderate and conservative. But if
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  Speaker 4: you say, well, no, I just want to make wise
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  Speaker 4: decisions that optimize my outcome based upon quantitative factors like
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  Speaker 4: when I'm going to need this money, which is a
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  Speaker 4: lot of people, by the way, they don't really understand investing,
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  Speaker 4: but they just want to maximize long term opportunity, Well,
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  Speaker 4: then you're going to want to get into the quantitative
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  Speaker 4: factors of how long until I need this money? When
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  Speaker 4: I need this money, how much will I need out
• 10:44
  Speaker 4: per year for income purposes, what other sources of income
• 10:47
  Speaker 4: are available to me? Will that be a long term
• 10:49
  Speaker 4: income stream or a short term income stream until social
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  Speaker 4: Security kicks on. Is this your only source of income
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  Speaker 4: or will your spouse work part time? So you get
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  Speaker 4: the idea, it's the one inditative aspect of this is
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  Speaker 4: much more definable and allows you to move towards an
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  Speaker 4: acid allocation that represents your needs instead of your feelings.
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  Speaker 4: But I will tell you our feelings overwhelm our needs.
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  Speaker 4: There's something in our human nature. We are driven by
• 11:18
  Speaker 4: our feelings. It's the reason that we as an organization
• 11:21
  Speaker 4: are what is called a behavioral finance centric firm because
• 11:25
  Speaker 4: we believe it is people's behaviors that drive their long
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  Speaker 4: term financial outcomes and not often the quantitative factors. So
• 11:34
  Speaker 4: know thyself, number one, and then number two, know the
• 11:37
  Speaker 4: quantitative factors that are going to impact your ability to
• 11:40
  Speaker 4: take on equity risk.
• 11:42
  Speaker 1: Talking this morning with CJ.
• 11:43
  Speaker 2: Colossalmliaquavis, they are our retirement planning professionals at Class Financial.
• 11:46
  Speaker 1: What was that term their, CJ? You mentioned equity risk?
• 11:50
  Speaker 4: Is that what I call the.
• 11:51
  Speaker 2: Term about the psychology of what use to vary? A
• 11:56
  Speaker 2: term that I haven't heard before and I should have
• 11:58
  Speaker 2: jotted it down as you were saying towards the end,
• 12:00
  Speaker 2: Malina was about to I think it was going to
• 12:02
  Speaker 2: chime into but yeah, I've got to I've got to listen.
• 12:04
  Speaker 1: You know what I gotta do. I gotta do what
• 12:05
  Speaker 1: I want to do to the show.
• 12:08
  Speaker 3: I just talk.
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  Speaker 4: I don't even know what I'm saying.
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  Speaker 2: It was appropriate, it was fascinating, So I've got I've
• 12:14
  Speaker 2: got to learn more about that, so we'll dig into
• 12:16
  Speaker 2: that stuff.
• 12:16
  Speaker 1: Of course.
• 12:17
  Speaker 2: Mention that podcast at class financial dot com. That's COSS
• 12:19
  Speaker 2: k l a A S Financial dot com and their
• 12:22
  Speaker 2: telephone number at Class Financial no charts that initial gets
• 12:25
  Speaker 2: to know your appointment at Class Financial will be complimentary
• 12:27
  Speaker 2: to you. At six o eight four four two five
• 12:30
  Speaker 2: six three seven c J mentions Know Thyself. We're going
• 12:33
  Speaker 2: to talk about the why in yourself and DIY. What
• 12:36
  Speaker 2: about being a DIY investors. We'll get the investor with
• 12:39
  Speaker 2: details from Malia and just a moment Ask Money in
• 12:41
  Speaker 2: Motion with COSS Financial continues right here thirteen ten wib
• 12:45
  Speaker 2: right talking this week with out retirement planning professionals from
• 12:50
  Speaker 2: Class Financial about making better financial decisions.
• 12:52
  Speaker 1: We're going to talk about.
• 12:53
  Speaker 2: Maybe becoming a DEY investor. What that means we'll get
• 12:57
  Speaker 2: to Malia on that in just a moment. In the meantime,
• 12:59
  Speaker 2: mender the web site. Check it out Closs financial dot com.
• 13:02
  Speaker 2: That's Coss k l aas Financial dot com. That's off
• 13:05
  Speaker 2: a number for the officer right here in Madison. Six
• 13:07
  Speaker 2: so eight four four two five six three seven. No
• 13:11
  Speaker 2: charge for the initial get to know your appointment tech
• 13:12
  Speaker 2: Claws Financial. It will be complimentary to you and their number.
• 13:15
  Speaker 2: Six oh eight four four two five six three seven. So, Malia,
• 13:19
  Speaker 2: once we kind of understand our tolerance risk is something
• 13:22
  Speaker 2: who can simply say, Okay, I'm going to manage my
• 13:23
  Speaker 2: own retirement planning or kind of becoming one of those
• 13:26
  Speaker 2: DIY investors.
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  Speaker 1: What do we need to know there?
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  Speaker 3: Yeah, absolutely, And again back to what CJ is saying
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  Speaker 3: about knowing yourself, that's actually easier said than done. We
• 13:35
  Speaker 3: really don't know ourself because we are we are tempted
• 13:40
  Speaker 3: sometimes from the outside things look easier than they are.
• 13:43
  Speaker 3: But we have many clients that we work with that
• 13:46
  Speaker 3: are very good when it comes to managing their own portfolios.
• 13:49
  Speaker 3: So at some point in life you may may have
• 13:53
  Speaker 3: a different feeling about managing everything for yourself. But we
• 13:57
  Speaker 3: certainly think that with all the tools available out there today,
• 14:02
  Speaker 3: you certainly could do a good job for yourself as
• 14:05
  Speaker 3: long as you understand your own emotional swings. So you know,
• 14:09
  Speaker 3: it's funny when we hear about people, for example, going
• 14:12
  Speaker 3: to Las Vegas, we really only hear about when they win.
• 14:16
  Speaker 3: I don't hear about the trips when they're losing, right,
• 14:19
  Speaker 3: And same could be said when people are investing on
• 14:22
  Speaker 3: their own. Sometimes we hear about their big wins, but
• 14:24
  Speaker 3: the reverse is not always the same situation. So we
• 14:29
  Speaker 3: would say, you know, being a do it yourself investor
• 14:33
  Speaker 3: certainly feasible when you're young and your portfolio is a
• 14:36
  Speaker 3: relatively small But when we're getting into some serious retirement
• 14:41
  Speaker 3: planning and really looking at your objectives, your true goals,
• 14:45
  Speaker 3: and also taking into consideration spouses, partners, and family, et cetera,
• 14:51
  Speaker 3: that's where you may need an additional source of information.
• 14:56
  Speaker 3: So sometimes we see people managing their wealth keeps them engaged,
• 15:01
  Speaker 3: which we are big fans of. It gives them a
• 15:04
  Speaker 3: genuine source of pride, and so for those people we
• 15:08
  Speaker 3: wish them success and keep it going. That's fabulous, But again,
• 15:12
  Speaker 3: not everybody has a genuine interest in doing it, and
• 15:15
  Speaker 3: when I say genuine, they have to figure out each
• 15:18
  Speaker 3: of us, like, is this something I get up every
• 15:21
  Speaker 3: day and I just really want to take a look
• 15:23
  Speaker 3: at or only when the markets are up, because typically
• 15:26
  Speaker 3: nobody really looks at what's going on unless things are
• 15:29
  Speaker 3: way up or way down. And making sure that you're
• 15:32
  Speaker 3: looking at your own portfolio through the good, bad and
• 15:35
  Speaker 3: ugly is important and staying on track. So what we
• 15:39
  Speaker 3: see sometimes is depending on the profession that people have
• 15:44
  Speaker 3: come from, as they move out of move into retirement,
• 15:48
  Speaker 3: sometimes they find themselves in a somewhat financial fog. They
• 15:52
  Speaker 3: were experts at what they did in their profession, and
• 15:55
  Speaker 3: they sometimes think that we'll just naturally translate over to
• 15:59
  Speaker 3: watching over their portfolios. Sometimes it does and sometimes it doesn't.
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  Speaker 3: So we would say for a lot of do it
• 16:05
  Speaker 3: yourself investors, it does make sense at a certain point
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  Speaker 3: for you to at least get a second opinion. And
• 16:13
  Speaker 3: what we find as many times people themselves are surprised by, oh,
• 16:17
  Speaker 3: I hadn't really considered that or that, and I think,
• 16:21
  Speaker 3: if nothing else, sometimes having that second opinion kind of
• 16:25
  Speaker 3: like reaching out to your mom and dad for that
• 16:27
  Speaker 3: second opinion. It just gives you this new layer of HM.
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  Speaker 3: Hadn't considered that, and maybe I should pull back here,
• 16:35
  Speaker 3: or maybe I should not be so pulled back in
• 16:38
  Speaker 3: my investing, or maybe I should be saving more. And
• 16:41
  Speaker 3: just having those alternate opinions out there that come from
• 16:45
  Speaker 3: you know, reliable source, not just your neighbor, really could
• 16:49
  Speaker 3: make sense for you, you know, so we would we
• 16:53
  Speaker 3: would say technical and planning mistakes can be costly. Figuring
• 16:57
  Speaker 3: out how you're going to distribute that income retirement ultimately
• 17:01
  Speaker 3: in a tax efficient way. I mean that is huge
• 17:05
  Speaker 3: and sometimes people they were like, Wow, I made all
• 17:08
  Speaker 3: this money and I'm really excited about that. Who I
• 17:12
  Speaker 3: have to pay a lot of taxes on that because
• 17:14
  Speaker 3: I didn't look at the other side of what was
• 17:16
  Speaker 3: going on in the distribution cycle. So, you know, choosing
• 17:21
  Speaker 3: to be a do it yourself investor or working with
• 17:23
  Speaker 3: an advisor does pose several questions, and again back to
• 17:27
  Speaker 3: which one of these people are you? How do you
• 17:30
  Speaker 3: like to spend your time? And are you one of
• 17:32
  Speaker 3: those people that does want to manage your wealth at
• 17:35
  Speaker 3: every stage? And the other thing is can you accept advice?
• 17:40
  Speaker 3: Can you act on advice? So you know, I take
• 17:43
  Speaker 3: this Seriously, time is really the most precious commodity any
• 17:48
  Speaker 3: of us has, and so I would say you should
• 17:50
  Speaker 3: be spending it the way you want to. You know,
• 17:54
  Speaker 3: do you want to spend more time with family or
• 17:56
  Speaker 3: do you want to worry every day about your portfolio? Again,
• 18:00
  Speaker 3: I like engaged people. I like people being engaged in
• 18:04
  Speaker 3: what they love to do. But I also recognize that
• 18:07
  Speaker 3: there's something bigger in life sometimes and that might be
• 18:10
  Speaker 3: spending time in a better area for you. But the
• 18:15
  Speaker 3: other aspect, which I think is the reason a lot
• 18:17
  Speaker 3: to do it yourself selfers do everything, name it plumbing, painting,
• 18:22
  Speaker 3: et cetera, is I don't want to spend the money.
• 18:25
  Speaker 3: So you do want to be looking at the fees
• 18:27
  Speaker 3: that are going to be charged by a financial advisory
• 18:30
  Speaker 3: firm or whoever you choose to work with. You're going
• 18:33
  Speaker 3: to want to find out if you do choose an advisor,
• 18:36
  Speaker 3: what experience do they have two similar liked clients, you know,
• 18:41
  Speaker 3: to your own similar situation, and how often will you
• 18:44
  Speaker 3: be able to meet with that person is to review
• 18:46
  Speaker 3: your progress and keep you on track. You know, ultimately,
• 18:50
  Speaker 3: if you do decide to go with a financial advisor,
• 18:53
  Speaker 3: understand they are your coach. They're going to keep you
• 18:56
  Speaker 3: on the path, and they're going to tell you not
• 18:58
  Speaker 3: to order the burger and fry is. They're going to say, no,
• 19:01
  Speaker 3: we probably need to add more into your savings or
• 19:04
  Speaker 3: we need to be a little less risk oriented here.
• 19:08
  Speaker 3: So understand that the qualified financial advisor is going to
• 19:11
  Speaker 3: look at your overall situation ultimately probably create a tailored
• 19:16
  Speaker 3: plan for you. And again this isn't for everybody, but
• 19:20
  Speaker 3: for many people, what we find is there's a good
• 19:23
  Speaker 3: end result planning usually. Planning always usually pays off in
• 19:28
  Speaker 3: the end. We looked back at a study to find
• 19:31
  Speaker 3: out how many people really even use a financial advisor today,
• 19:35
  Speaker 3: and Northwestern Mutual came out in twenty twenty two with
• 19:39
  Speaker 3: their study showing that only about thirty five percent of
• 19:43
  Speaker 3: Americans actually utilize an advisor. So if you're one of
• 19:47
  Speaker 3: those sixty five percent of the people out there who
• 19:49
  Speaker 3: don't have one, it may be time to at least
• 19:51
  Speaker 3: consider the purpose, understand how your money and your retirement
• 19:57
  Speaker 3: related concerns are going to work out for you, and
• 20:00
  Speaker 3: make sure you have that partner alongside you. If you
• 20:04
  Speaker 3: should choose to do that, you.
• 20:06
  Speaker 2: Know, it's interesting Uncle Sam always will let you know
• 20:08
  Speaker 2: if you underpay on taxes, but never let you know
• 20:11
  Speaker 2: that there was a deduction or another opportunity you could
• 20:14
  Speaker 2: have taken to a lot.
• 20:15
  Speaker 1: They just did that would be true.
• 20:16
  Speaker 2: So we talk about the importance of planning. And I
• 20:19
  Speaker 2: know we talked taxes a couple of weeks ago, and
• 20:21
  Speaker 2: you can listen back to that program. Class financials website
• 20:25
  Speaker 2: Cossfinancial dot com. That's Coss k l a as Financial
• 20:28
  Speaker 2: dot com and their telephone number six oh eight four
• 20:30
  Speaker 2: four two five six three seven no charge for the
• 20:33
  Speaker 2: initial gets know your ployment tech costs financial It will
• 20:35
  Speaker 2: be complementary to you again their number six O eight
• 20:37
  Speaker 2: four four two five six three seven two words behavioral finance.
• 20:41
  Speaker 2: Will get the details from CJ on that next as
• 20:44
  Speaker 2: Money in Motion with Coss Financial continues right here thirteen
• 20:47
  Speaker 2: ten WYBI talking with our retirement planning professionals CJ. Closs
• 20:55
  Speaker 2: and Malia Quavis. Of course they come to us from
• 20:57
  Speaker 2: Class Financial, the website Cossfinancial dot Com. Telephone number six
• 21:00
  Speaker 2: so eight four four two five six three seven.
• 21:03
  Speaker 1: So CJ.
• 21:04
  Speaker 2: What needs to be understood? What do we need to
• 21:05
  Speaker 2: understand when it comes to behavioral finance and when we're looking
• 21:09
  Speaker 2: kind of at our own financial picture.
• 21:12
  Speaker 4: Yeah, that's a good question. So today, as most of
• 21:14
  Speaker 4: you know who are listening, we're talking about kind of
• 21:16
  Speaker 4: risk tolerance and how we define different terms relative to
• 21:20
  Speaker 4: risk tolerance. We've talked about knowing yourself and Alia was
• 21:24
  Speaker 4: talking about DIY investors, do it yourself investors, along with
• 21:27
  Speaker 4: things you might want to consider when you hire an advisor.
• 21:31
  Speaker 4: Now we're just going to talk about kind of some
• 21:33
  Speaker 4: biases that we have as individuals, and this gets into
• 21:37
  Speaker 4: why some people as either their dollars become larger or
• 21:40
  Speaker 4: their financial lives become more complex, or in the case
• 21:43
  Speaker 4: of our firm, as people get closer to retirement, they
• 21:46
  Speaker 4: often recognize this has kind of gotten outside of the
• 21:49
  Speaker 4: scope of what I can handle on my own, and
• 21:51
  Speaker 4: so they'll often look for financial professionals like us. And
• 21:55
  Speaker 4: part of the reason is because of some of these
• 21:59
  Speaker 4: biases that we have. So many of us have heard
• 22:01
  Speaker 4: of what we call different theories economic theories like oh,
• 22:05
  Speaker 4: markets are efficient and we as humans are very rational
• 22:08
  Speaker 4: in our decision making. And then some of us in
• 22:11
  Speaker 4: the community laugh at this and go rational like I
• 22:14
  Speaker 4: ate the burger when I should have had the the salad,
• 22:17
  Speaker 4: and I was emotionally, you know, taken over by this
• 22:20
  Speaker 4: marketing scheme, and I doubled down when I was at
• 22:23
  Speaker 4: the casino when I should have just walked away. So
• 22:26
  Speaker 4: what's interesting that everybody needs to understand is when we
• 22:28
  Speaker 4: talk about efficient markets, what we're really referencing is that
• 22:33
  Speaker 4: information is broadly available and get gets used up right away.
• 22:39
  Speaker 4: So if new information hits the market, it gets priced
• 22:42
  Speaker 4: into the market very rapidly. It is not because all
• 22:45
  Speaker 4: of those people making those decisions are fully rational. It's
• 22:49
  Speaker 4: that as a large cohort of hundreds of millions, if
• 22:53
  Speaker 4: not billions, of people engaging public markets, it creates very
• 22:58
  Speaker 4: quick efficiencies in the market and also creates heard outcomes.
• 23:03
  Speaker 4: But the question becomes, what are some of the biases
• 23:06
  Speaker 4: that I, as an individual might hold. Well, here's a
• 23:09
  Speaker 4: few of them. Number one is an over confidence bias.
• 23:13
  Speaker 4: This is an emotional bias. In general, humans tend to
• 23:16
  Speaker 4: view the world positively outside of finance, studies amongst drivers
• 23:21
  Speaker 4: report themselves to be safer than the majority of other drivers.
• 23:26
  Speaker 4: Many studies amongst professionals find themselves to have unrealistic positive
• 23:30
  Speaker 4: self evaluations. And overestimations of their own contributions to past
• 23:36
  Speaker 4: positive outcomes. Hence, while confidence can be a valuable trait,
• 23:40
  Speaker 4: it can also lead to biased investing. So take over confidence. Right,
• 23:45
  Speaker 4: If I ask my daughter right now, who's eighteen years old,
• 23:47
  Speaker 4: are you a good driver? I'm a great driver? Right,
• 23:50
  Speaker 4: And it's a what about if we just looked at
• 23:54
  Speaker 4: this on like a quantitative basis, right, tickets and crashes
• 23:58
  Speaker 4: and truth be told, she has a very good driver,
• 24:00
  Speaker 4: hasn't had much in that regard, but you get the point.
• 24:03
  Speaker 1: We tend to believe that we.
• 24:05
  Speaker 4: Have more inside information than we actually have, which leads
• 24:09
  Speaker 4: to overconfidence, which in the investing world is a poison pill,
• 24:14
  Speaker 4: because if you think you know something that nobody else does,
• 24:17
  Speaker 4: you tend to trade on that. And if you know
• 24:19
  Speaker 4: anything about markets, trading on your belief system can be
• 24:22
  Speaker 4: a really tough gain. Bias Number two would be what's
• 24:27
  Speaker 4: called a loss aversion bias. We previously discuss this as
• 24:31
  Speaker 4: an understanding your own kind of risk tolerance, but behavioral
• 24:35
  Speaker 4: finance experts suggest that investors are more sensitive to loss
• 24:40
  Speaker 4: than to risk and possible return. Effectively, people often prefer
• 24:44
  Speaker 4: to avoid loss over acquiring an equivalent gain. So we
• 24:49
  Speaker 4: just got done talking about overconfidence, which is like my
• 24:51
  Speaker 4: insider information and how good I am as an individual.
• 24:55
  Speaker 4: But the next is our overreaction to the fear of loss.
• 24:58
  Speaker 4: It's kind of the opposite, but it's a similar bias
• 25:02
  Speaker 4: where I say, oh, my goodness, I'm good, I'm good,
• 25:04
  Speaker 4: I'm good. Oh I've lost five percent, and I head
• 25:06
  Speaker 4: for the hills. So in finance, you'll often hear people,
• 25:10
  Speaker 4: I guess say the euphoria of a gain is only
• 25:16
  Speaker 4: one third the heartache of a loss. Let me repeat
• 25:20
  Speaker 4: that the euphoria of a gain is typically only one
• 25:23
  Speaker 4: third of the heartbreak of a loss. And what that
• 25:25
  Speaker 4: means is that losses impact the average investor three times
• 25:29
  Speaker 4: more than the happiness they receive from a gain. Another
• 25:33
  Speaker 4: bias would be something we call herd mentality. This is
• 25:36
  Speaker 4: also known as the bandwagon effect. Herd mentality bias is
• 25:40
  Speaker 4: the tendency to copy or follow the crowd at the
• 25:44
  Speaker 4: expense of your own independent research and ideas. Listen, guys,
• 25:48
  Speaker 4: this one is so well documented it's scary. As a
• 25:52
  Speaker 4: matter of fact, if you were to look at things
• 25:55
  Speaker 4: like Kathy Woods Arc Investing, people called her the Jesus
• 25:58
  Speaker 4: of investing here. A number of years ago, during the
• 26:00
  Speaker 4: COVID crisis, if you look at the average ARC investor outcome,
• 26:06
  Speaker 4: most people joined that fund after it had hit its
• 26:09
  Speaker 4: peak because the herd said, oh, look at all the returns.
• 26:13
  Speaker 4: You know, these early investors got, I'll jump on the
• 26:16
  Speaker 4: bandwagon now, just in time for it to get crushed.
• 26:21
  Speaker 4: So herd mentality tends to have you jump on at
• 26:23
  Speaker 4: the wrong times, which is again a big danger to
• 26:27
  Speaker 4: investing in public markets. And then finally, and by the way,
• 26:30
  Speaker 4: there are like fifty different biases we could go through here,
• 26:33
  Speaker 4: but I will end on one more. This is another
• 26:36
  Speaker 4: one for all of you to do a deep soul search.
• 26:38
  Speaker 4: It's called anchoring. Investors tend to hold onto a belief
• 26:43
  Speaker 4: and then apply it as a subjective reference point for
• 26:46
  Speaker 4: making future judgments. People often base their decisions on the
• 26:51
  Speaker 4: first source of information to which they're exposed and have
• 26:54
  Speaker 4: difficulty adjusting their views to new information. Boy, couldn't this
• 27:00
  Speaker 4: apply to the political world?
• 27:03
  Speaker 3: Right?
• 27:03
  Speaker 4: I hat? I hope I'm not hitting anybody who's nerves
• 27:06
  Speaker 4: too much here, But we anchor, right, Hey, I heard
• 27:09
  Speaker 4: this thirty five years ago. It's a truth I'm never
• 27:12
  Speaker 4: moving from it. Right, it's like pause. Especially in the
• 27:15
  Speaker 4: world of investing, this gets very dangerous. Like pause. Things
• 27:19
  Speaker 4: have changed, technology has changed, and we need to know
• 27:22
  Speaker 4: access markets now in a different way. So, especially with
• 27:26
  Speaker 4: your financial portfolio, you have to remain mentally nimble because
• 27:30
  Speaker 4: things change. So there you go. There's four different biases
• 27:35
  Speaker 4: that tend to impact us negatively when it comes to investing,
• 27:39
  Speaker 4: but it can be one of the benefits of working
• 27:40
  Speaker 4: with an advisor as they will help you help you
• 27:42
  Speaker 4: work through that.
• 27:43
  Speaker 2: It's a great great advice rate, great information and great
• 27:46
  Speaker 2: understanding and an opportunity to do a little more understanding.
• 27:49
  Speaker 2: Been thinking about making contact with Class Financial. Great day
• 27:51
  Speaker 2: to pick up phone, give me a call, don't forget
• 27:53
  Speaker 2: no charge for the national gets no appointment a loss financial.
• 27:55
  Speaker 2: It will be conflimentary to you. They're telephe number six
• 27:57
  Speaker 2: oh eight four four two five six three the website
• 28:00
  Speaker 2: coss financial dot com. That's coss Klaas Financial dot com.
• 28:04
  Speaker 1: Mention the number just a moment ago.
• 28:06
  Speaker 2: You're gonna want to hold on to that because it's
• 28:07
  Speaker 2: time now for the Coss quiz question the week it
• 28:09
  Speaker 2: works like this, just a moment to ask you the
• 28:11
  Speaker 2: Coss Quiz question the week. You will then have thirty
• 28:12
  Speaker 2: minutes from the today's program to call the Cost Financial
• 28:15
  Speaker 2: office right here in Madison at six oh eight four
• 28:18
  Speaker 2: four two five, six three seven. If you are the
• 28:21
  Speaker 2: first car with the correct answer, you'll win this week's prize,
• 28:23
  Speaker 2: which is a twenty five dollars gift card to Red Robin.
• 28:27
  Speaker 2: This week's Coss Quiz question the week is this true
• 28:30
  Speaker 2: or false? Risk tolerance can be influenced by several factors
• 28:35
  Speaker 2: such as your specific goals and your age and number
• 28:38
  Speaker 2: of years until retirement. Telephone number six oh eight four
• 28:42
  Speaker 2: four two, five, six three seven. First called correct answer
• 28:44
  Speaker 2: w on the twenty five dollars gift card to Red Robin.
• 28:46
  Speaker 2: Don't forget as well. That's COSS Financials Office right here
• 28:49
  Speaker 2: in Madison. No charge for the initial get to know
• 28:51
  Speaker 2: your appointment at Cost Financial. It is indeed complimentary to
• 28:54
  Speaker 2: you again the number six oh eight four four two five,
• 28:57
  Speaker 2: six three seven. C. J.
• 28:58
  Speaker 1: Molea. It's always great chatting with both of you guys.
• 29:00
  Speaker 1: Enjoy this fantastic day, Thanks Sean.
• 29:03
  Speaker 2: Doctor Marty Greer comes your way next here on thirteen
• 29:05
  Speaker 2: TENU Wuiba, this is money in Motion with COSS Financial
• 29:09
  Speaker 2: Asset Advisors LLC, a registered investment advisor registered with the SEC.
• 29:15
  Speaker 2: The contents of this show are for informational purposes only
• 29:18
  Speaker 2: and should not be considered individual investment advice. Class Financial
• 29:21
  Speaker 2: does not offer tax or legal advice. Any opinion offered
• 29:25
  Speaker 2: during the course of this show is the opinion of
• 29:28
  Speaker 2: that particular investment advisor representative, and not necessarily the opinion
• 29:32
  Speaker 2: of COSS Financial. News comes your way next right here
• 29:35
  Speaker 2: on thirteen ten, WIBA