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The Psychology of Wealth: Why Smart People Make Poor Financial Decisions · Money In Motion with Klaas Financial

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  Speaker 1: Our phone lines here at the station, they are open
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  Speaker 1: to you right now at 608-321-1310. That's 608-321-1310. If you
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  Speaker 1: have questions for our retirement planning professionals from Kloss Financial,
• 0:13
  Speaker 1: love to have you join us this week. Again, the
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  Speaker 1: telephone number to get on the air, 608-321-1310. Joined this
• 0:19
  Speaker 1: morning by CJ Kloss and Eric Schwartz. They are our
• 0:22
  Speaker 1: retirement planning professionals from Kloss Financial. You can learn all
• 0:25
  Speaker 1: about Kloss Financial on their website, klossfinancial.com. That's Kloss, K-L-A-S, financial.com.
• 0:32
  Speaker 1: Great website and resource to learn all about Kloss Financial.
• 0:35
  Speaker 1: Also some great opportunities there as well to listen back
• 0:39
  Speaker 1: to this and previous shows podcasts. You can also schedule
• 0:42
  Speaker 1: a complimentary conversation right from the website. Again, that is klossfinancial.com.
• 0:48
  Speaker 1: That's Kloss, K-L-A-S, financial.com. and the telephone number for Klaus Financial, 608-442-5637.
• 0:53
  Speaker 1: And joining us this morning, as mentioned, are CJ Klaus
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  Speaker 1: and Eric Schwartz. CJ, how are you doing this morning? Oh,
• 1:04
  Speaker 1: may have a connection issue there with CJ. It does
• 1:06
  Speaker 1: show he is connected.
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  Speaker 2: Eric, are you along with us this morning? Interesting.
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  Speaker 3: All right.
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  Speaker 1: We may have some technical issues going this morning with,
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  Speaker 1: of course, the CJ Kloss and Eric Schwartz are retirement
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  Speaker 1: planning professionals from Kloss Financial. We're going to talk this
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  Speaker 1: morning about the psychology of wealth and why, and this
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  Speaker 1: is interesting, and I can't wait to get into this
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  Speaker 1: with CJ and Eric, but why smart people make poor
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  Speaker 1: financial decisions. And we'll get to those details with CJ
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  Speaker 1: and Eric in just a moment. And Got a full show, again,
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  Speaker 1: scheduled with the guys from Klaus Financial. A couple things
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  Speaker 1: to keep in mind. I mentioned the website. I mentioned
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  Speaker 1: the telephone number as well. Another thing is listen closely
• 1:46
  Speaker 1: to the program because just about each and every week,
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  Speaker 1: the question and answer to each week's program for the
• 1:51
  Speaker 1: Klaus Quiz Question Week comes up. This week, I had
• 1:53
  Speaker 1: a chance for you to win a $ 25 gift card
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  Speaker 1: to Starbucks. Again, listen closely because typically both the question
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  Speaker 1: and answer come up during each week's program. And Eric,
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  Speaker 1: before we get rolling on this week's conversation on the
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  Speaker 1: psychology of wealth, one, how are you doing this.
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  Speaker 2: Morning, my friend?
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  Speaker 3: Not too bad. How about you, Sean?
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  Speaker 2: I'm doing really well.
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  Speaker 1: Before we get rolling on this week's conversation, let's actually
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  Speaker 1: look back at last week's show and do the question
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  Speaker 1: and answer to the class quiz question.
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  Speaker 4: Of the week.
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  Speaker 5: Yeah, so last week we were talking about estate planning
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  Speaker 5: and being really intentional about how you are passing your wealth.
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  Speaker 5: So our question was true or false. If your will
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  Speaker 5: says one thing, but a retirement account beneficiary form says
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  Speaker 5: something different, the will generally controls where the assets in
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  Speaker 5: that retirement account goes. So the correct answer was false.
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  Speaker 5: Retirement accounts will generally pass according to the beneficiary designation
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  Speaker 5: on the account. So this is super important. We talked
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  Speaker 5: a lot about it last week. When we're looking at accounts,
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  Speaker 5: any type of account, retirement account, investment account, Whatever that
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  Speaker 5: beneficiary designation says goes, regardless of what your will says.
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  Speaker 1: And that was a really important conversation as well, because there's,
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  Speaker 1: you think about that will part of that conversation. A
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  Speaker 1: lot of us have a mistaken understanding of how these
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  Speaker 1: things work together. You can, of course, listen back to KlausFinancial.com.
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  Speaker 1: That's Klaus, K-L-A-A-S-Financial.com, as mentioned as well. CJ Klaus joining us. CJ,
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  Speaker 1: how are you doing this morning?
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  Speaker 3: I'm doing great, Sean. How are you?
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  Speaker 2: I'm doing really well. Great to talk with you.
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  Speaker 1: And we're going to talk about the psychology of wealth
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  Speaker 1: and why smart people make poor financial decisions. And CJ,
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  Speaker 1: you know, why can intelligent, very successful analytical people still
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  Speaker 1: make poor decisions with their money?
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  Speaker 3: Yeah, good question.
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  Speaker 4: And it's because intelligence and good financial behavior are not
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  Speaker 4: the same skill. Someone may evaluate information extremely well at work,
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  Speaker 4: yet react very emotionally when the decision involves their personal
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  Speaker 4: savings or retirement or their family or their future security.
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  Speaker 4: So we find that most financial mistakes start with a
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  Speaker 4: normal reaction. Fear can make us overly cautious. Confidence can
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  Speaker 4: push us to act too quickly. And then optimism can
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  Speaker 4: cause us to overlook certain risks. Comparing ourselves to others
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  Speaker 4: can also influence us. You know, this is kind of
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  Speaker 4: like social media, right? We often say, what's the statement?
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  Speaker 4: Comparison is the thief of joy. Well, it's the same
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  Speaker 4: in investing. So some of those instincts that come up
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  Speaker 4: are not necessarily all bad, but they can lead us
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  Speaker 4: off track when they begin driving decisions instead of our
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  Speaker 4: goals driving our decisions. So success can make this even harder.
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  Speaker 4: People with experience and financial resources have more choices, but
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  Speaker 4: they often also have more at stake and they have
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  Speaker 4: greater confidence in their judgment because they've got a lot
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  Speaker 4: of money. So behavioral finance helps us recognize that tension
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  Speaker 4: before it can affect the plan. We see this all
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  Speaker 4: the time where people come into our office and they've
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  Speaker 4: done well in their particular area. area of expertise, think
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  Speaker 4: manufacturing or healthcare or technology, whatever it might be. And
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  Speaker 4: then they think that skill will naturally apply to trading
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  Speaker 4: the markets or trading options or whatever it might be.
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  Speaker 4: And what's interesting is that there's a lot of biases
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  Speaker 4: connected to that. So they might lose 10 times and
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  Speaker 4: win once, and they'll tell you about their one winner.
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  Speaker 4: Because part of what makes people successful often is the
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  Speaker 4: belief that they can overcome.
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  Speaker 3: And we love that.
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  Speaker 4: I love kind of the right mindset. But when it
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  Speaker 4: comes to investing, we will often run into people who
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  Speaker 4: have done quite well in their personal lives in a
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  Speaker 4: particular area of business. But then it doesn't translate as
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  Speaker 4: nicely to trading in the market. So there's a lot
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  Speaker 4: of psychology around wealth, a lot of psychology around trading.
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  Speaker 3: And it's kind of interesting to watch it play out
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  Speaker 3: from the inside.
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  Speaker 2: It's real fascinating stuff.
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  Speaker 1: And I know we've talked about different aspects of the
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  Speaker 1: psychology of investing and other things as well. Obviously, this week,
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  Speaker 1: we are specifically focusing in on the psychology around wealth.
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  Speaker 2: Don't worry, you can always listen back to this.
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  Speaker 1: In previous shows podcast, again, we touch on similar type topics,
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  Speaker 1: little different aspects of investing when it comes to people's behaviors.
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  Speaker 1: A lot of great shows available to you right at KlausFinancial.com.
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  Speaker 1: That's Klaus, K-L-A-A-S, Financial.com. You can listen back to this
• 6:21
  Speaker 1: and subscribe to previous shows podcasts all online. Also, while
• 6:25
  Speaker 1: you're there, you can schedule a complimentary conversation for yourself
• 6:28
  Speaker 1: right at KlausFinancial.com. Or even easier, you can pick up
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  Speaker 1: the phone, give them a call this morning, 608-442-5637. No
• 6:35
  Speaker 1: charge for that initial get-to-know-you appointment at Klaus Financial. It
• 6:38
  Speaker 1: will be complimentary to you. Again, their number is 608-442-5637.
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  Speaker 1: And we're talking this week about why smart people make
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  Speaker 1: poor financial decisions.
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  Speaker 2: And Eric, fear.
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  Speaker 1: What does fear actually do when it comes to financial decision-making?
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  Speaker 5: Yeah, I think this is probably one of the emotions
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  Speaker 5: that CJ and I spend most of our days talking
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  Speaker 5: about with clients, especially depending on what the market is
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  Speaker 5: doing that day. But fear is really going to narrow
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  Speaker 5: your focus, right? Instead of having that really long-term kind of,
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  Speaker 5: you know, wide breadth view of like, you know, what
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  Speaker 5: gives my long-term plan the best chance of succeeding? Instead
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  Speaker 5: of that, we're saying, how do I make this really
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  Speaker 5: uncomfortable feeling stop, right? I just, whatever it takes, I
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  Speaker 5: want to do something to make that stop right now.
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  Speaker 5: And what this can do is it can lead an
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  Speaker 5: investor to sell during a decline in the market. But
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  Speaker 5: that's kind of the obvious one, right? It appears in
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  Speaker 5: other ways, too. You know, a retiree might be afraid
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  Speaker 5: to spend even when someone like CJ or I tells
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  Speaker 5: them that the level of spending they're doing is sustainable, right?
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  Speaker 5: Someone may hold far more cash than they need because,
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  Speaker 5: you know, that balance feels safe in the bank, even
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  Speaker 5: though it's not doing much for them. Or even another
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  Speaker 5: person may refuse to sell a losing investment because, you know,
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  Speaker 5: that makes it feel final, makes it feel like, oh, man,
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  Speaker 5: I made a mistake here.
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  Speaker 4: Right.
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  Speaker 5: And that last tendency is something that some folks will
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  Speaker 5: call the disposition effect. So investors will hold on to
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  Speaker 5: losers too long to avoid the regret. And then they'll
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  Speaker 5: also sell winners too quickly because realizing a gain actually
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  Speaker 5: feels really rewarding. And both of these motions are really understandable,
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  Speaker 5: but it definitely can interfere with, you know, what we
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  Speaker 5: often think of as a very disciplined investment process.
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  Speaker 1: It's interesting when we talk about this stuff, too, when
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  Speaker 1: you talk about having that disciplined investment process.
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  Speaker 2: I think theoretically, we're all like, yeah, I'm going to
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  Speaker 2: be this.
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  Speaker 1: And then it's when the action, I know we've talked
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  Speaker 1: about this as well on previous shows. about when people
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  Speaker 1: start to experience some of these maybe ups and downs
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  Speaker 1: or other emotional things that have all been planned for.
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  Speaker 1: What's the old Mike Tyson, everybody has a plan until
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  Speaker 1: they get hit in the face kind of thing? Same
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  Speaker 1: kind of thing is with this stuff is it's important
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  Speaker 1: to have that plan, but also for folks that have
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  Speaker 1: experienced it. and having trusted people on your side. So
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  Speaker 1: we talked this morning with CJ Kloss and Eric Schwartz,
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  Speaker 1: our retirement planning professionals from Kloss Financial. And CJ, I
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  Speaker 1: think of the opposite, you know, the opposite emotion often
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  Speaker 1: with this stuff. We're talking greed here. Is there a
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  Speaker 1: useful way, maybe a more useful way to describe that emotion?
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  Speaker 3: Yeah, it's the fear of missing out, right?
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  Speaker 4: So FOMO, a friend or coworker mentions an investment that
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  Speaker 4: maybe doubled. And the question changes from, does this investment
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  Speaker 4: fit my plan to, why am I not buying that thing?
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  Speaker 3: Right. Again, we, we run into this quite often.
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  Speaker 4: It's, I shouldn't say quite often, every day, all day,
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  Speaker 4: we run into this where it's like, whatever is doing
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  Speaker 4: the best that day, we're hearing about it from our client.
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  Speaker 4: Like I heard Bitcoin, I heard gold, I heard real estate.
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  Speaker 4: And it's, it's whatever the hot thing is of the
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  Speaker 4: day that like, and it's just like, where does that
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  Speaker 4: come from in our human emotion?
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  Speaker 3: And it's pretty simple. It's the fear of missing out.
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  Speaker 4: Like, hey do you know about this you know financial
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  Speaker 4: advisor and of course we do we we're very aware
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  Speaker 4: of these these items but this is where the herd
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  Speaker 4: behavior can take over by the time you've heard about
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  Speaker 4: it it's because it's gone way up and it's the
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  Speaker 4: hottest thing out there right So we assume the crowd
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  Speaker 4: knows something we do not, even though we usually hear
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  Speaker 4: about that investment after it's attracted all this attention. But
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  Speaker 4: popularity can make an opportunity feel safer because that excitement
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  Speaker 4: and expectations are already really high. And the practical risk
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  Speaker 4: is what we would call chasing performance or concentrating money
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  Speaker 4: in one idea or abandoning diversification because a balanced plan
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  Speaker 4: suddenly feels boring. So we would say a helpful question
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  Speaker 4: is this. If nobody else were talking about this investment,
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  Speaker 4: would I still want to own it for the same reasons?
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  Speaker 4: So an example of this, I think a great example
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  Speaker 4: is Bitcoin. If nobody else was talking about this thing,
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  Speaker 4: you can't touch, see, feel or, you know, really even
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  Speaker 4: know how to transact with or understand how it could
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  Speaker 4: be stolen from you. Would you be thinking I should
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  Speaker 4: put my life savings there? And the answer is typically no,
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  Speaker 4: I wouldn't. But when Bitcoin was hot, everybody wanted to
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  Speaker 4: put their money into it. And by the way, this
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  Speaker 4: is not me anti-cryptocurrencies. That's not the point that I'm making.
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  Speaker 4: It's more just often people are asking questions because of
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  Speaker 4: the herd mentality, not because it's a good diversifier or
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  Speaker 4: good long-term decision that helps them meet their goals.
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  Speaker 1: Really interesting perspectives as we talk this morning with CJ
• 11:34
  Speaker 1: Kloss and Eric Schwartz. They are our retirement planning professionals
• 11:37
  Speaker 1: from Kloss Financial. You can learn about Eric and CJ
• 11:40
  Speaker 1: on the website, klossfinancial.com, the entire team at Kloss Financial. Also,
• 11:44
  Speaker 1: you can learn about their separate divisions, whether you're an
• 11:46
  Speaker 1: individual or an employer looking for some great options when
• 11:49
  Speaker 1: it comes to planning. Klossfinancial.com is a great starting point
• 11:52
  Speaker 1: for that. Also, while you're there, You can submit a
• 11:54
  Speaker 1: question to be answered here on the program. You can
• 11:57
  Speaker 1: also schedule a complimentary conversation right online, KlausFinancial.com. That's Klaus, K-L-A-A-S, Financial.com. Or,
• 12:04
  Speaker 1: of course, you can always pick up the phone, give
• 12:05
  Speaker 1: them a call right at the office here in Madison, 608-442-5637.
• 12:10
  Speaker 1: No charge for that initial Get to Know You conversation.
• 12:13
  Speaker 1: It will be complimentary to you at Kloss Financial. Again,
• 12:15
  Speaker 1: their number is 608-442-5637. We'll continue our conversation with CJ
• 12:20
  Speaker 1: Kloss and Eric Schwartz. We will do that next as
• 12:22
  Speaker 1: Money in Motion with Kloss Financial continues.
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  Speaker 2: Right here on 1310 WIBA.
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  Speaker 1: Talking this morning with our retirement planning professionals from Klaus Financial,
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  Speaker 1: CJ Klaus and Eric Schwartz, talking this week about the
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  Speaker 1: psychology of wealth and really about why smart people make
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  Speaker 1: poor financial decisions.
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  Speaker 2: A really, really interesting program.
• 12:44
  Speaker 1: Don't forget, if you miss any part of today's show
• 12:46
  Speaker 1: or want to catch up on any of the previous programs,
• 12:48
  Speaker 1: you head on over to KlausFinancial.com. That's Klaus, K-L-A-A-S, Financial.com.
• 12:53
  Speaker 1: you will find this podcast as well as an opportunity
• 12:55
  Speaker 1: to subscribe to the podcast right from the website. Telephone
• 12:58
  Speaker 1: number at Colossal Financial, 608-442-5637. And Eric, overconfidence, that can
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  Speaker 1: be tricky for smart folks, can't it?
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  Speaker 3: Yeah.
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  Speaker 5: And I think it's because when we think about someone
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  Speaker 5: being successful or good at a particular skill, that's going
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  Speaker 5: to build confidence in their decision-making and It tends to
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  Speaker 5: make people feel more confident and feel certain about a
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  Speaker 5: lot of things. And someone can understand a company or
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  Speaker 5: an industry that maybe they work in. They can understand
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  Speaker 5: that industry really well, but they still don't know how
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  Speaker 5: millions of other investors are going to evaluate and price
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  Speaker 5: the information coming out of that specific industry. And overconfidence...
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  Speaker 5: We see this in action. It can lead someone to
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  Speaker 5: hold too much employer stock for the company they work for,
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  Speaker 5: which causes them to tie personal wealth to the same
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  Speaker 5: industry that provides the paycheck or assume that several successful
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  Speaker 5: choices prove their ability to identify the next winner. It's
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  Speaker 5: about experience. I think that's why people end up in
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  Speaker 5: these situations where they're making poor decisions because they're When
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  Speaker 5: you've built success and confidence in yourself, it can make
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  Speaker 5: you feel like you know everything and you should make
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  Speaker 5: all the decisions. The other thing I want to point
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  Speaker 5: out here is it's really important to separate the quality
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  Speaker 5: of a decision from the outcome. For example, a concentrated
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  Speaker 5: stock position may rise in value really quickly, but that
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  Speaker 5: doesn't really prove that that was a responsible decision or
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  Speaker 5: that level of risk was very appropriate. Good decisions sometimes
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  Speaker 5: have disappointing outcomes and poor decisions sometimes get rewarded, right?
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  Speaker 5: So we should be evaluating the information, the risk, and
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  Speaker 5: reasoning that existed when the choice was made, not just
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  Speaker 5: what happened afterward, right? That's not the way that we're
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  Speaker 5: going to build a disciplined and predictable future financial plan.
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  Speaker 1: That seems to tie in also with what I'm going
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  Speaker 1: to ask CJ about in just a moment.
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  Speaker 2: But in the meantime, I hope you get a.
• 15:10
  Speaker 1: Chance to check out the website I mentioned, KlausFinancial.com, to
• 15:13
  Speaker 1: listen back to the podcast I didn't mention coming back.
• 15:15
  Speaker 1: And it's an important feature of KlausFinancial.com. It's an opportunity
• 15:18
  Speaker 1: to schedule a complimentary conversation right from the website, KlausFinancial.com.
• 15:22
  Speaker 1: That's Klaus, K-L-A-A-S, Financial.com. You can schedule that complimentary conversation, again,
• 15:27
  Speaker 1: right online or pick up the phone, give.
• 15:31
  Speaker 2: Them a call, 608-442-5637.
• 15:32
  Speaker 1: No charge for that initial conversation at KlausFinancial.com. it is
• 15:35
  Speaker 1: complimentary to you. Again, their number 608-442-5637. So CJ, what
• 15:41
  Speaker 1: role does confirmation bias play in all of this?
• 15:45
  Speaker 4: Yeah, you know, I was laughing at Eric's last segment there.
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  Speaker 4: It reminds me of my children a little bit where,
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  Speaker 4: you know, because Eric was mentioning good decisions sometimes have
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  Speaker 4: disappointing outcomes and poor decisions sometimes have good outcomes. And
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  Speaker 4: I think of like my children, if they If they
• 16:02
  Speaker 4: work really hard for something, they practice a lot. I'm
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  Speaker 4: thinking sports now, right? They practice a lot and then
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  Speaker 4: they get rewarded for that. I feel really good about that.
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  Speaker 4: But when a child is lazy and they don't show
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  Speaker 4: up for anything and then they get lucky, it's almost
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  Speaker 4: like worse. You're sitting there going, I would prefer that
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  Speaker 4: you didn't get rewarded because it's making you think that
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  Speaker 4: this is the way the world works. So what am
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  Speaker 4: I getting at here? We see the same thing in investing.
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  Speaker 4: We'll see people who know nothing about investing. They'll jump
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  Speaker 4: onto E-Trade or something like that. They'll buy a stock.
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  Speaker 4: They'll get lucky and they'll make money. And Eric and
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  Speaker 4: I will often go, ooh, that is the worst thing
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  Speaker 4: that could have happened to you because now you think
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  Speaker 4: you know something when in actuality you just got lucky.
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  Speaker 4: So anyway, but going back to your original question, confirmation bias.
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  Speaker 3: So what is that?
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  Speaker 4: Confirmation bias is our tendency to favor information that supports
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  Speaker 4: what we already believe and discount information that challenges us.
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  Speaker 4: Investing makes that easy because an article, some expert or
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  Speaker 4: social media post can usually be found to support almost
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  Speaker 4: any opinion that you might have. And if someone expects
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  Speaker 4: a stock to rise, that person may focus on optimistic
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  Speaker 4: research and dismiss information. warning signs from other research. If
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  Speaker 4: someone expects a recession, every weak statistical data point that
• 17:27
  Speaker 4: they see can seem important while stronger evidence gets ignored.
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  Speaker 4: So a useful discipline is to ask, what would have
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  Speaker 4: to be true for my opinion to be wrong? Then
• 17:39
  Speaker 4: actively looked for the strongest argument on the other side.
• 17:43
  Speaker 4: The goal is not to become indecisive. It's to make
• 17:46
  Speaker 4: sure confidence is has survived a fair challenge. Another way
• 17:50
  Speaker 4: to think about this would be to apply a scientific
• 17:54
  Speaker 4: rigor to your investment decision making. So often in science,
• 17:58
  Speaker 4: what will happen is you will think their hypothesis is true,
• 18:04
  Speaker 4: but then you will ask other researchers to basically build
• 18:07
  Speaker 4: a case against that, right? To see if that also
• 18:11
  Speaker 4: has equal footing and to test it over and over
• 18:14
  Speaker 4: and over to make sure that it's true. Listen, when
• 18:18
  Speaker 4: it comes to investing, believe it or not, because the
• 18:21
  Speaker 4: market goes up, if you were to take all stocks
• 18:23
  Speaker 4: in the S & P 500 and just look at
• 18:25
  Speaker 4: them over long arcs of time, they tend to go
• 18:27
  Speaker 4: up about 72% of the time. Therefore, it's easy to
• 18:33
  Speaker 4: get a confirmation bias, isn't it? Because 72% of the time,
• 18:37
  Speaker 4: you're going to make money. Now, how much money you're making,
• 18:40
  Speaker 4: is it consistent? Is it repeatable? Is it diversified? Is
• 18:43
  Speaker 4: it all that?
• 18:44
  Speaker 3: To the average investor, the answer is, doesn't matter. I
• 18:46
  Speaker 3: made money.
• 18:47
  Speaker 5: Right.
• 18:48
  Speaker 4: But that that builds a lot of bad habits because
• 18:52
  Speaker 4: you think it's because of something, you know, when in reality,
• 18:55
  Speaker 4: it's simply because markets go up 72 percent of the
• 18:58
  Speaker 4: time over long arcs of time. It's all about building
• 19:02
  Speaker 4: something that is repeatable.
• 19:04
  Speaker 3: And consistent.
• 19:05
  Speaker 4: So be cautious, ever so cautious with the confirmation biases
• 19:09
  Speaker 4: that exist in your brain.
• 19:11
  Speaker 1: You know, CJ, one of the things I think about
• 19:12
  Speaker 1: too is how this is getting just more prevalent and
• 19:15
  Speaker 1: maybe less obvious is AI loves to tell you what
• 19:18
  Speaker 1: you want to hear.
• 19:18
  Speaker 2: Lots.
• 19:19
  Speaker 3: Oh, goodness.
• 19:20
  Speaker 4: Yeah. For those who are listening out there, you can
• 19:22
  Speaker 4: actually do some training and some setting changes in the
• 19:26
  Speaker 4: background to ask AI to be less empathetic and less
• 19:29
  Speaker 4: reinforcing of your... So I would actually encourage people to
• 19:32
  Speaker 4: do that.
• 19:34
  Speaker 3: Although it depends.
• 19:34
  Speaker 4: If people are using AI for counseling, then I guess
• 19:38
  Speaker 4: the empathy.
• 19:38
  Speaker 3: Is a good thing.
• 19:39
  Speaker 1: Yeah, it's just fascinating stuff. And that's some of the
• 19:42
  Speaker 1: great stuff. For those of you that have been listening
• 19:45
  Speaker 1: to this program over the years, one of the great
• 19:47
  Speaker 1: things about it is always bringing new perspectives.
• 19:50
  Speaker 2: On things.
• 19:50
  Speaker 1: And that really shows the benefit of if you haven't
• 19:53
  Speaker 1: subscribed to the podcast yet, why you should be doing that.
• 19:55
  Speaker 1: There's so much great information provided each and every week
• 19:58
  Speaker 1: from our friends at Kloss Financial. You can subscribe right online, klossfinancial.com.
• 20:02
  Speaker 1: That's Kloss, K-L-A-S, financial.com. And Eric, are there biases that
• 20:06
  Speaker 1: show up even when someone's not actually actively buying and selling?
• 20:12
  Speaker 5: Yeah, absolutely. We talk a lot about, you know, maybe
• 20:15
  Speaker 5: like impulsive decision making or, you know, just not thinking
• 20:20
  Speaker 5: through things as being a danger when we think of
• 20:23
  Speaker 5: the psychology of wealth and investing. But bias for the
• 20:28
  Speaker 5: status quo or kind of like a lack of inertia,
• 20:31
  Speaker 5: these are really common as well. And, you know, the
• 20:34
  Speaker 5: mistake doesn't always need to be an impulsive decision. It
• 20:36
  Speaker 5: can also be failing to make a necessary decision because
• 20:40
  Speaker 5: Doing nothing feels.
• 20:41
  Speaker 3: A whole lot easier.
• 20:42
  Speaker 5: And I think a really good example of this is
• 20:46
  Speaker 5: think about like an old 401k retirement plan from an
• 20:49
  Speaker 5: employer that you don't work for anymore, right? And you
• 20:52
  Speaker 5: probably aren't actively looking at the statement and reviewing the allocation.
• 20:58
  Speaker 5: You know, maybe there's some cash that accumulated in there
• 21:00
  Speaker 5: after a business sale. Maybe you have outdated beneficiaries or
• 21:04
  Speaker 5: a concentrated stock position. We all have great plans to
• 21:10
  Speaker 5: address these things eventually, right? But the current situation feels familiar,
• 21:14
  Speaker 5: so you don't feel the need to make a change, right?
• 21:17
  Speaker 5: There's no emergency. Everything's fine right now. But when you're
• 21:21
  Speaker 5: doing nothing, you're still making a decision there. The existing
• 21:24
  Speaker 5: portfolio continues to carry risk. Extra cash in there is
• 21:29
  Speaker 5: losing purchasing power. And we've talked a lot about outdated beneficiaries.
• 21:34
  Speaker 5: That is a big problem for a lot of people.
• 21:37
  Speaker 5: So the status quo also deserves the same review as
• 21:41
  Speaker 5: any proposed action going forward.
• 21:44
  Speaker 2: Really important stuff this morning.
• 21:46
  Speaker 1: And CJ, as we're talking about the psychology of wealth,
• 21:49
  Speaker 1: how can comparison with other folks affect our wealth decisions?
• 21:56
  Speaker 4: Yeah, comparison can quietly move the goalposts is what we find.
• 22:00
  Speaker 4: So people will often say to myself or to Eric, hey,
• 22:04
  Speaker 4: my goal would be to get to a million dollars
• 22:06
  Speaker 4: in my 401k or in my portfolio. And then they
• 22:09
  Speaker 4: get there and we're celebrating. They're like, yeah, but it's
• 22:13
  Speaker 4: a million five. And then it's, by the way, I
• 22:16
  Speaker 4: never want to see it drop below that number. We go, well,
• 22:20
  Speaker 4: you'd have to stop investing for that to be the case.
• 22:23
  Speaker 4: So goalposts are moving.
• 22:24
  Speaker 3: And it's why?
• 22:25
  Speaker 4: Because comparison is the thief of joy. We've talked about it, right?
• 22:29
  Speaker 4: So a neighbor buys a second home, a coworker retires early,
• 22:32
  Speaker 4: or a friend discusses an investment win, and suddenly a
• 22:36
  Speaker 4: reasonable financial plan feels completely inadequate. The problem is that
• 22:40
  Speaker 4: we compare our complete financial reality with a small, visible
• 22:45
  Speaker 4: part of someone else's. We see the purchase, not the debt, right?
• 22:49
  Speaker 4: We hear about the winning investment, not the losing ones.
• 22:52
  Speaker 4: We see the retirement announcements, not the pension, the inheritance,
• 22:56
  Speaker 4: spending needs, or other resources behind it. Because of our roles,
• 23:01
  Speaker 4: we often have an inside look into what is the
• 23:05
  Speaker 4: engine supporting people's decision-making. Let me give you an example
• 23:11
  Speaker 4: of this. We'll work with people where we go, oh, wow,
• 23:13
  Speaker 4: they have modest incomes. They're really hardworking, honest people, but
• 23:17
  Speaker 4: they live in an unbelievable neighborhood. And it's because grandpa
• 23:21
  Speaker 4: died or their aunt or uncle died and left them
• 23:23
  Speaker 4: a ton of money. But then their friends who are reasonable,
• 23:28
  Speaker 4: hardworking people who are maybe, you know, teachers or in
• 23:32
  Speaker 4: the trades, look at them and go, why don't we
• 23:35
  Speaker 4: live in that nice neighborhood? You see the point, right?
• 23:38
  Speaker 4: And they are thinking, They must be doing something different
• 23:41
  Speaker 4: than us or investing or taking more risk. And actually,
• 23:43
  Speaker 4: it's like, no, no, no, no, no. You're missing the
• 23:45
  Speaker 4: whole point. You don't have the inheritance. That's like the
• 23:50
  Speaker 4: only thing missing here. So we try to do these
• 23:54
  Speaker 4: comparisons without the full picture. It steals our joy and
• 23:58
  Speaker 4: ends up influencing our desires and wants when really we
• 24:01
  Speaker 4: should have never been desiring or wanting what our neighbor
• 24:04
  Speaker 4: had in the first place or our coworkers. So we
• 24:07
  Speaker 4: find that these types of situations can encourage unnecessary investment
• 24:12
  Speaker 4: risk or lifestyle spending that doesn't support your own priorities.
• 24:17
  Speaker 4: So wealth is most useful when it's connected to your
• 24:21
  Speaker 4: personal values. Once another person's scoreboard becomes your scoreboard, it
• 24:26
  Speaker 4: becomes much harder to recognize when you have enough. And
• 24:30
  Speaker 4: that is, by the way, in the world of investing
• 24:33
  Speaker 4: and building retirement plans and all of that, One of
• 24:36
  Speaker 4: the most critical questions that you can answer is, do
• 24:41
  Speaker 4: you know when enough is enough?
• 24:45
  Speaker 2: A great perspective. And I know I've quoted this on
• 24:48
  Speaker 2: the air in the past, but I'll bring it up again.
• 24:49
  Speaker 2: The Mr.
• 24:50
  Speaker 1: Burns line where he says, ah, yes, but I trade
• 24:53
  Speaker 1: it all for a little more. Unfortunately, so often we're
• 24:56
  Speaker 1: looking at it this way. Talking this morning with CJ
• 24:58
  Speaker 1: Kloss and Eric Schwartz, our retirement planning professionals from Kloss Financial.
• 25:01
  Speaker 1: And Eric, what can folks do then before making an
• 25:03
  Speaker 1: important financial decision?
• 25:07
  Speaker 5: Sean, I love when you bring in a Mr. Burns
• 25:08
  Speaker 5: quote to really bring.
• 25:10
  Speaker 2: It all together.
• 25:11
  Speaker 3: Perfect.
• 25:12
  Speaker 2: Do my part.
• 25:15
  Speaker 5: Yeah, so when folks are needing to make an important
• 25:18
  Speaker 5: financial decision, CJ was kind of referencing earlier, almost taking
• 25:22
  Speaker 5: like a scientific approach to it, right? So just kind
• 25:24
  Speaker 5: of pausing and asking yourself some questions. What problem are
• 25:28
  Speaker 5: you trying to solve? And what has changed in your
• 25:32
  Speaker 5: financial life that requires you to actually take action in
• 25:35
  Speaker 5: this particular situation? Are you reacting to new facts or
• 25:41
  Speaker 5: to just a bad feeling? What is the strongest argument
• 25:45
  Speaker 5: against that decision? Or lastly here, if I wait A
• 25:50
  Speaker 5: couple of days. Is the opportunity truly gone? Is it
• 25:53
  Speaker 5: that important that I make a decision right now? This
• 25:57
  Speaker 5: pause really matters because many behavioral mistakes depend on our urgency, right?
• 26:02
  Speaker 5: Fear says act now. Excitement says act now. You're going
• 26:05
  Speaker 5: to miss out. But look at the crowd. They're all
• 26:07
  Speaker 5: going there. You have to get in there too. You
• 26:09
  Speaker 5: have to act now. But a more disciplined process gives
• 26:12
  Speaker 5: the rational part of the decision a little bit of
• 26:15
  Speaker 5: time to catch up and allow you to make a
• 26:18
  Speaker 5: very well-informed decision.
• 26:20
  Speaker 1: And CJ, let's talk about that discipline process. I mean,
• 26:22
  Speaker 1: is having a financial plan, is that something that can
• 26:26
  Speaker 1: help folks so we don't have to rely entirely on willpower?
• 26:31
  Speaker 4: Yes, awareness helps, but we would say structure is even better.
• 26:36
  Speaker 4: So set limits on how much can be held in
• 26:39
  Speaker 4: one company. That's an example of kind of rules. So
• 26:43
  Speaker 4: Josh Sterling, who's our chief investment officer, will often say
• 26:47
  Speaker 4: creating a rules-based system helps to eliminate the emotion. So
• 26:52
  Speaker 4: create rules for reducing concentrated positions. Automate savings and rebalancing
• 26:58
  Speaker 4: when it's appropriate. And for a major purchase or an investment,
• 27:01
  Speaker 4: agree in advance on a waiting period and have a
• 27:05
  Speaker 4: household conversation. My wife and I will actually talk about this.
• 27:09
  Speaker 4: If it's over $ 1, 000 of a purchase, we're going to pause,
• 27:13
  Speaker 4: sit down, have a conversation.
• 27:15
  Speaker 3: Outside of like sitting in front of a salesperson, right?
• 27:18
  Speaker 3: Think a vehicle.
• 27:19
  Speaker 4: We're going to have a quiet, organized conversation before we
• 27:23
  Speaker 4: would go make that purchase. So a decision journal can
• 27:27
  Speaker 4: also help people write down why you're making the choice,
• 27:31
  Speaker 4: what you expect and what could prove you wrong and
• 27:35
  Speaker 4: what risk you're accepting. And then later review the reasoning
• 27:38
  Speaker 4: rather than only the result. So we say, because writing
• 27:42
  Speaker 4: down versus talking it out, like I'm a verbal processor,
• 27:45
  Speaker 4: but I've seen people who are a written form processor.
• 27:48
  Speaker 4: And so writing things down can be really helpful. And
• 27:51
  Speaker 4: then obviously a financial advisor can add value by creating
• 27:55
  Speaker 4: some distance between you and the decision that you're making,
• 27:59
  Speaker 4: connecting the choices to maybe other factors like taxes or
• 28:03
  Speaker 4: liquidity or retirement income or estate goals or overall risk.
• 28:07
  Speaker 4: A good advisor should also be willing to challenge a
• 28:10
  Speaker 4: client's a client, you know, respectfully, instead of simply confirming
• 28:15
  Speaker 4: what the client hopes to hear from that advisor.
• 28:20
  Speaker 3: And I would say this is big.
• 28:22
  Speaker 4: I think consumers are anxious to trust somebody with that
• 28:27
  Speaker 4: level of depth of a relationship. And I get it, right?
• 28:30
  Speaker 4: It's almost like, hey, I want to sit with you.
• 28:33
  Speaker 4: I want to think through this big life decision, right? Moving, retiring,
• 28:38
  Speaker 4: buying a second home. And then I want to trust
• 28:41
  Speaker 4: that your response back to me isn't going to be
• 28:44
  Speaker 4: filled with conflicts of interest, right? This is one of
• 28:48
  Speaker 4: the reasons that we would humbly suggest if you are
• 28:51
  Speaker 4: looking for a partner to walk with you through key
• 28:55
  Speaker 4: life decisions, you really need to make sure they don't
• 28:59
  Speaker 4: have significant conflicts with you, right?
• 29:02
  Speaker 5: Mm-hmm.
• 29:03
  Speaker 4: Oh, why is it that my advisor just got so
• 29:07
  Speaker 4: excited when I talked about selling my home and moving
• 29:09
  Speaker 4: into an apartment? Turns out because my home is worth
• 29:12
  Speaker 4: a million dollars and they're going to sell me some
• 29:14
  Speaker 4: product to make a commission, right? It's like, oh man,
• 29:17
  Speaker 4: that cannot be entering your mind when you're sitting in
• 29:21
  Speaker 4: a quiet, trusted room with your advisor to be talking
• 29:25
  Speaker 4: through major life decisions. So we would just humbly suggest
• 29:29
  Speaker 4: that if you're going to work with somebody in this
• 29:31
  Speaker 4: capacity of long-term confidence in financial guidance, you need to
• 29:37
  Speaker 4: make sure that the conflicts that they have with you
• 29:40
  Speaker 4: are dramatically limited or even removed entirely. This is why
• 29:45
  Speaker 4: we are a fee-based fiduciary and we do not sell
• 29:48
  Speaker 4: products and we do not generate commissions, period.
• 29:51
  Speaker 3: End of story.
• 29:52
  Speaker 4: By the way, for those who have listened to our
• 29:53
  Speaker 4: show long enough, that hasn't always been the case. It's
• 29:55
  Speaker 4: because my father founded this firm about 50 years ago
• 29:59
  Speaker 4: when fee based advisory was, it wasn't a thing. You
• 30:02
  Speaker 4: were selling products or you weren't in the business, but
• 30:05
  Speaker 4: we worked really hard to completely eliminate that from our
• 30:09
  Speaker 4: offering because we didn't want the conflict. We didn't want
• 30:11
  Speaker 4: the perception of the conflict with our clients. So I'm
• 30:15
  Speaker 4: not saying anybody who sells your products is bad. I'm
• 30:18
  Speaker 4: just saying if you're looking for that quiet room, confident
• 30:22
  Speaker 4: key decision maker, you're going to want to make sure
• 30:25
  Speaker 4: that the conflicts are eliminated. So the goal is not
• 30:28
  Speaker 4: to eliminate emotion in all of this, everybody. It's to
• 30:30
  Speaker 4: create enough structure that one emotion in one day does
• 30:35
  Speaker 4: not rewrite a long-term plan.
• 30:37
  Speaker 1: One of the things I love is when you go
• 30:39
  Speaker 1: to KlausFinancial.com, the first question it asks is, how can
• 30:41
  Speaker 1: we help you? And I think as we talk about
• 30:43
  Speaker 1: this stuff today and some of the great benefits of
• 30:45
  Speaker 1: working with a great advisor, it's a good day to
• 30:47
  Speaker 1: stop by KlausFinancial.com. Don't forget, you can learn all about
• 30:50
  Speaker 1: Klaus Financial. You can schedule that complimentary chat. You can
• 30:53
  Speaker 1: also listen back to this and previous shows, podcasts as well.
• 30:56
  Speaker 1: That all available to you at KlossFinancial.com or give them
• 31:01
  Speaker 1: a call 608-442-5637. Before we get to the Kloss quiz
• 31:02
  Speaker 1: question week, though, I did, Eric, want to have you
• 31:05
  Speaker 1: kind of wrap the show up this week. And just
• 31:07
  Speaker 1: for folks that may have missed the earlier part of
• 31:09
  Speaker 1: the program and just kind of encapsulate if there's kind
• 31:12
  Speaker 1: of like a big takeaway, what folks should remember, what
• 31:15
  Speaker 1: would that be?
• 31:17
  Speaker 5: Yeah, I think first, smart people are not immune to
• 31:20
  Speaker 5: poor financial decisions. Knowledge and success can sometimes increase confidence
• 31:25
  Speaker 5: and make people think that their decision is right, but
• 31:29
  Speaker 5: it always needs to be challenged because that's where we
• 31:31
  Speaker 5: can actually get down to the facts. The second, emotions
• 31:36
  Speaker 5: are information, but they're not the instructions. You can have fear,
• 31:40
  Speaker 5: you can have excitement, but then bring that decision back
• 31:44
  Speaker 5: to your plan before you actually take take action. Third,
• 31:49
  Speaker 5: improve your process rather than trying to be perfect. Things
• 31:53
  Speaker 5: like diversifying your investments, having written rules and waiting periods
• 31:57
  Speaker 5: and getting second opinions and regular reviews, these can all
• 32:01
  Speaker 5: help you stop one mistake from becoming a permanent setback.
• 32:07
  Speaker 5: Lastly here, seek out the guidance of a trusted financial advisor.
• 32:11
  Speaker 5: CJ just gave a great rundown of how an advisor
• 32:16
  Speaker 5: can be helpful. And one of the best ways that
• 32:18
  Speaker 5: you can remove emotion from a decision-making process is to
• 32:22
  Speaker 5: bring in a neutral third party. And I will add
• 32:25
  Speaker 5: a trusted neutral third party. That is going to be big.
• 32:29
  Speaker 1: Great stuff this morning as we talk with Eric Schwartz
• 32:31
  Speaker 1: and CJ Kloss. They are our retirement planning professionals from
• 32:34
  Speaker 1: Kloss Financial. You can get to know them online, klossfinancial.com.
• 32:37
  Speaker 1: That's Kloss, K-L-A-S, financial.com. You can also schedule that complimentary
• 32:41
  Speaker 1: conversation right from the website or give them a call, 608-442-5637.
• 32:44
  Speaker 2: Again, no charge.
• 32:48
  Speaker 1: For that initial get-to-know-you appointment at Kloss Financial, it will
• 32:50
  Speaker 1: be complimentary to you. Again, that website, klossfinancial.com. The telephone
• 32:54
  Speaker 1: number is 608-442-5637. Go ahead and hold on to that
• 32:57
  Speaker 1: telephone number now because it's time for the Kloss Quiz
• 33:00
  Speaker 1: Question of the Week.
• 33:01
  Speaker 2: It works like this. In just a moment, I'll ask
• 33:02
  Speaker 2: you the Klaus Quiz question of the week.
• 33:04
  Speaker 1: You will then have 30 minutes from the end of
• 33:05
  Speaker 1: today's program to call the Klaus Financial Office right here
• 33:07
  Speaker 1: in Madison at 608-442-5637. If you are the first caller
• 33:13
  Speaker 1: with the correct answer, you win this week's prize, which
• 33:15
  Speaker 1: is a $ 25 gift card to Starbucks. This week's Klaus
• 33:19
  Speaker 1: Quiz question of the week is this.
• 33:20
  Speaker 2: True or false?
• 33:22
  Speaker 1: A good financial decision or a bad one? will always
• 33:25
  Speaker 1: produce a good outcome. Is that true or is that false?
• 33:28
  Speaker 1: Telephone number 608-442-5637. First call with correct answer, win that
• 33:33
  Speaker 1: $ 25 gift card to Starbucks. Don't forget that's Kloss Financial's
• 33:35
  Speaker 1: office here in Madison.
• 33:37
  Speaker 3: 608-442-5637.
• 33:38
  Speaker 1: CJ, Eric, it's always great chatting with both of you.
• 33:42
  Speaker 1: You guys enjoy this great day and we'll talk real soon.
• 33:45
  Speaker 3: Thanks, Sean.
• 33:46
  Speaker 2: Take care, guys. News comes your way next right here
• 33:48
  Speaker 2: on 1310 WIBA.
• 33:51
  Speaker 1: This is Money in Motion with Kloss Financial Asset Advisors, LLC,
• 33:55
  Speaker 1: a registered investment advisor registered with the SEC.
• 33:59
  Speaker 2: The contents of this show.
• 34:00
  Speaker 1: Are for informational purposes only and should not be considered
• 34:03
  Speaker 1: individual investment advice. Kloss Financial does not offer tax or
• 34:07
  Speaker 1: legal advice. Any opinion offered during the course of this
• 34:10
  Speaker 1: show is the opinion of that particular investment advisor representative
• 34:15
  Speaker 1: and not necessarily the opinion of Kloss Financial.