Boomers, Markets & Money

A Down-to-Earth Discussion of Financial and Lifestyle Information for Baby Boomers

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What is Stopping Me From Investing my Money??

Investing Anxiety

Investing Anxiety

My friend Ann said, “What I want to know is: What is stopping me from investing my money?”

Ann is not alone. A Nationwide Financial survey found that more people are afraid of investing in the stock market (62%), than are afraid of death (58%), or public speaking (57%.)

Daniel Kahneman, psychologist and winner of the Nobel Prize in Economics, gave advice on this topic in his book Thinking, Fast and Slow. Kahneman gave this sermon to fictional character Sam:

“I sympathize with your aversion to losing any gamble, but it is costing you a lot of money.”

Kahneman advised, “You will do yourself a large financial favor if you are able to see each of these gambles as part of a bundle of small gambles and rehearse the mantra that will get you significantly closer to economic rationality: you win a few, you lose a few. The main purpose of the mantra is to control your emotional response when you do lose.”

The author did not condone reckless gambling. He had three limits on his “win a few, lose a few mantra.”

  • Diversify. The gambles have to be independent of each other. “…it does not apply to multiple investments in the same industry, which would all go bad together.”
  • Don’t bet the farm.  The gamble should be small enough so you are not worried about a significant loss to your wealth. “If you would take the loss as significant bad news about your economic future, watch it!”
  • No long shots.  This mantra doesn’t apply to long shots which he described as “the probability of winning is very small for each bet.”

Kahneman said you have to have emotional discipline to follow the above rules. But his main point is that you should see each decision as one of many small decisions in a portfolio.  Emotional distress can also be reduced by cutting back on how often you check how your investments are doing.

Related Blog Posts

“How to Handle Emotions When Making Investment Decisions”

“When to Trust Your Intuition or Gut Instinct When Making Financial Decisions”

“How the Heck Do I Invest my Money?”


“Nationwide Financial Survey Finds Fear of the Markets Trumps Fear of Death”

“Thinking, Fast and Slow” by Daniel Kahneman, pages 338-339

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When to Trust Your Intuition or Gut Instinct When Making Financial Decisions

How Feelings Can Affect Investment Choices

Feelings and Investment Decisions (Click to Enlarge)

Traditionally, being rational and objective was highly prized in the investment decision process. Emotions were to be controlled and repressed for fear of making bad decisions. However, early studies that combine psychology, the biology of the brain, and investment risk are beginning to challenge that view.

I recently read an article in CFA Institute’s magazine called “Sentimental Journey” that reviewed recent research. Cynthia Harrington referred to research conducted by Columbia Business School professor Michel Pham and associates published in the Journal of Consumer Research. They researched how people’s trust in their own feelings affected decision-making. The exhibit below gives a quick summary of the research.

Why It Is Important to Know How Trust in Feelings Affects Decisions

The researches are trying to figure out if gut instincts improve the accuracy of predictions in decisions in uncertain events with high stakes. This could help decisions made by professionals in many varied areas such as the Pentagon, Wall Street, weather prediction, to name a few.


Should We Pay Attention to Our Feelings When Making Decisions?

Summary of “The Emotional Oracle Effect” (Click to Enlarge)

People were divided into two groups:

  • People who had high trust in their feelings
  • People who had low trust in their feelings

Subjects were asked to make decisions in the eight studies mentioned in the Exhibit to the right. (Click to Enlarge.)

Conclusions on Whether Feelings Help us Make Better Decisions

People who had high trust in their feelings were more accurate in their predictions in all the studies.

However, this effect only occurs when people have sufficient background knowledge in the decision area.

People who trusted their feelings didn’t make rash decisions. They still took the time to carefully consider the information.

Why Feelings Can Help Us Make Better Decisions

While a more analytical approach with just a few inputs might seem more logical, it could be leaving out key information that your feelings are hinting at. Study authors speculate that when a person trusts their feelings about a subject they have experience with, they access “a vast amount of information that people learn consciously and unconsciously about their environment.” Professor Pham believes that feelings “…tap into all we know about our environment.”

Knowing how and when to trust our feelings when we are choosing an investment can help us improve our choices.


“Sentimental Journey” by Cynthia Harrington. CFA Magazine, March/April 2013.

“Feeling the Future: The Emotional Oracle Effect” by Michel Tuan Pham, Leonard Lee, Andrew T. Stephen

Related Posts

“How To Handle Emotions When Making Investment Decisions”


How to Handle Emotions When Making Investment Decisions

We all struggle with emotions regarding money. Making major investment decisions without safeguards during periods of extreme emotion can work against us both in down and up markets.

I saw a helpful interview on Bloomberg TV this week. Greg Davies, Barclay’s head of Behavioral Finance, offered some tips on how to make better decisions when you feel your anxiety spike.

  • Develop habits over the years that you use regularly. A well-thought-out routine will help you make sound decisions when events rattle the markets. So, at a time when the markets are calm and you feel coolheaded, write down what you should do. Read it when you feel anxious. He said it is critical not to wait until the last minute when you are in a very stressful situation. A checklist can be one way to organize your plan.

    Milo contemplating his next move...

    Sleep overnight on major investment decisions. (Click to Enlarge)

  • Have a cooling down mechanism planned. Davies suggested planning on sleeping overnight on a decision to make a major change in yourinvestment portfolio. Or you could have a plan to talk to a trusted friend or financial advisor before acting on a major revision.

We’re all familiar with those uncomfortable feelings that pop up during major market declines. But emotions can work to an investor’s detriment during stock market upswings, too.

I can’t help wondering if a little stock market euphoria is developing now. I saw four commentators make optimistic comments about the stock market during a segment on CNBC this week. Ralph Acompora exclaimed, “I’m so excited! We have years left!” When I heard that, I felt really uneasy.

I had visions of CNBC anchors putting on Dow 10,000 hats the first time that level was hit. (For your amusement, I have included a link below to a pictorial of the Dow 10,000 hat.) Investors can feel pressure that they are missing out on a rally and buy in at market peaks.

As Warren Buffet said, “You try to be greedy when others are fearful and you try to be very fearful when others are greedy.”


“Old Hat: Dow 10000, a History in Headwear” by Matt Phillips. The Wall Street Journal

“How to Overcome Emotional Responses in Investing”   Bloomberg Television Video.


Review of PBS Frontline’s “The Retirement Gamble”

I recommend that you watch the eye-opening PBS Frontline Special “The Retirement Gamble.” Thank you to Claire for suggesting it.

Some key points from the program:

  • Many hidden layers of fees are eroding individual investor wealth.

Jack Bogle, founder of The Vanguard Group, gave an example of how much fees cost an individual over a 50-year investing lifetime. If this consumer receives a 7% annual return and pays 2% in annual fees, fees will erode two-thirds of the investor’s gains. Bogle said you can see these results on a compound interest table.

I decided to do just that and found an investment calculator at (Please click on the image below.)  Using the same figures show that the portfolio would be reduced by 63.58%. We should all be checking the fees on our retirement plans!

Annual Fees Greatly Reduce Portfolio Results

Investment Key Calculator (Click to Enlarge)

  • Robert Hiltonsmith, a policy analyst at Devos, examined his own retirement plan to see what fees were taken out of his account. He found that about 25 fees were extracted from his account by mutual funds, fund brokers, plan adminstrators, etc.

  • Teresa Ghilarducci, economist at The New School for Social Research said:

401(k) plans were originally designed for wealthy people. Now, the advisors middle class have access to are really just sales people.

American consumers don’t know the price, quality, or dangers of their 401k plans due to strong industry lobbying.

“So we know after 30 years of this 401(k) experiment that people do worse in 401(k)s than they would have if their money was in a traditional plan or if it was in a plain vanilla retirement account.”

  • Many of the options in plans are mediocre and many people are not prepared to invest their own money.

This became clear to me when I had someone from a cable company come to my home to repair the phone. When he saw that I had the TV set to a financial news channel, he began telling me that he had all of his retirement money in marijuana stocks. Although his portfolio had lost 50% of its value at this point, he was very optimistic about his future prospects. I was very shaken when he left as I wondered how many people were investing their retirement funds this recklessly.

  • According to the Department of Labor, there are no clear standards on who can give advice to consumers of retirement plans. Also, there is no clear way for a consumer to tell who has the expertise to advise them. There was intense industry lobbying when new standards were proposed, forcing them to be withdrawn.


PBS Frontline. Videos and transcripts.

Related Posts on This Blog

“Resources to Help You Decide  When to Take Social Security”

“A Critical Step for Preparing for Retirement”

“How the Heck Do I Invest My Money?”

“Book Review -‘The Bankers’ New Clothes: What’s Wrong With Banking and What to do About It”


How to Keep a Second Home Fun by Realistically Planning Future Expenses (Second in a Series)

Dreaming of that ideal vacation spot? Captiva Island. (Click to Enlarge)

Dreaming of that ideal vacation spot?
Captiva Island. (Click to Enlarge)

Realistic planning of future expenses is very important to keep your second home an escape from the stress of your day-to-day life. Who needs a huge financial obligation that wrecks retirement plans or adds worry to our lives?

This post will include a list of expenses we have encountered in maintaining our home. (Yes, I can be a drag sometimes.)

Each homeowner will have different expenses depending on the part of the country they live in, whether it is a condo or single-family home, etc. But here is our list, which can help you start your planning process:

  •  Homeowner’s Insurance is a big one and can be higher than your primary home insurance. Our home in Southwest Florida requires three types of insurance: dwelling x-wind, flood insurance and wind insurance. Find out what is required in your area.

“5 Questions to Ask Before Buying a Vacation Home” by Melissa Neiman discusses factors that affect insurance rates.

  • Perhaps you want to enjoy the sun and the sea while fishing.

    Perhaps you want to enjoy the sun and the sea while fishing.

    Real Estate Taxes. Check to see if rates are different for state residents and non-resident homeowners.

  • Utilities. Telephone, cable TV, Internet, electricity, water, sewer, etc.
  • Homeowner’s Association Fees. Yard maintenance may be additional for single-family homes.
  • Furnishings. Furniture, Dishes, Linens, etc.
  • Surprises (large and small.) Appliances will need repair and replacement. Then there are the really fun ones like roof leaks and bursting pipes.

    Taking a Dip in the Beautiful Waters of Blind Pass. Between Sanibel and Captiva Islands. (Click to Enlarge.)

    Taking a Dip in the Beautiful Waters of Blind Pass. Between Sanibel and Captiva Islands. (Click to Enlarge.)

Since you won’t be occupying your second home all year, there may be expenses that you don’t have at your primary home:

  • Home watch service. A good idea and sometimes required by mortgage companies.
  • Contracts for pest control, air conditioning, and heating maintenance.
  • We choose to offset some expenses by renting our home part-time. We find it convenient to use a rental agent, which leads to a 20% commission and small monthly marketing fee.

Despite the expenses, we’ve enjoyed our new home. One way to keep expenses down is to avoid buying an expensive trophy home. After all, if you are on vacation, you want to be outside enjoying yourself anyway.

Please enjoy some photographs from Sanibel, Captiva, and Useppa Islands in Southwestern Florida.

Do you like to walk and enjoy the vegetation?  Useppa Island. (Click to Enlarge)

Do you like to walk and enjoy the vegetation? Useppa Island. (Click to Enlarge)

In our last post , we talked about the quality of life issues that Baby Boomers should consider when purchasing a second home. “Lifestyle Considerations When Buying a Second Home”

I’d like to thank my much older brother Jim for suggesting the topic of this series.
Please write in your suggestions for post topics in the comment section.



Many Baby Boomers are using the real estate downturn as an opportunity to buy a second home.

Kayaking the East End of Sanibel

Kayaking the East End of Sanibel (Click to Enlarge)

Quality of life features should be considered before making such an important decision.

We have all daydreamed about living in an exotic location that we’ve seen in a movie or a National Geographic special. But if you want to enjoy your vacation home as long as possible, you need to consider practical details as well as dramatic scenery.

What to Look For in a Vacation Community

An Environment that Encourages Physical Activity

Research has shown that regular exercise is key to a vigorous old age and good mental and cognitive health. Exercise that has a social aspect to it encourages people to get out. Many boomers are enjoying kayaking and biking clubs, as well as recreation centers. A mild climate helps.

Kayaking Sanibel Canals

Kayaking Sanibel Canals (Click to Enlarge)

Opportunities for Intellectual Growth

The average lifespan is increasing, creating opportunities to learn new things. It also helps us stay adaptable in a world that is changing rapidly.

Purpose in Life

Research has shown that people live longer and have less depression if they pursue an activity that is meaningful to them.

Patrica Boyle, PhD, a neuropsychologist with the Rush University Medical Center found that people with a higher purpose in life had lower mortality rates among older adults. Research has even shown that volunteering has a positive impact on health.

A Curious Site While Kayaking on a Sanibel Canal (Click to Enlarge)

Opportunities for Social Interaction

People often find that they have to make more of a conscious effort to see people after they retire. Check out the availability of clubs and activities. Of course, if you want the grandchildren to visit, make sure there are fun activities for them, too.

Easily Accessible, Good Quality Healthcare

Let’s face it. We are going to need to visit the doctor more often and you never know when an emergency will happen.

Reasonable Travel Times and Cost

Keeping travel costs and distances as low as possible ensures that you will use your new home more.

Some Baby Boomers are choosing traditional warm weather vacation spots. Others are choosing to purchase second homes in college towns. College communities provide recreational and educational opportunities. Small college towns may also have an intergenerational atmosphere that many find appealing .

Keep an eye out for a future post on financial details to consider when buying a second home.


“Under the Microscope: Purpose in Life May Protect Against Alzheimer’s Disease” Rush University Medical Center

“During the holidays and beyond, helping others will also help you stay healthy” Rush University Medical Center

Book Review — “The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It”

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Two experts wrote a book about the recent financial meltdown and our broken banking system.

What’s different about this book is that it is written so simply and clearly that anyone can understand it. Academics Anat Admati and Martin Hellwig, who have spent their careers studying the financial system, picked apart the causes of the 2007-2009 crises. They have come up with simple, cost-effective changes that can make the banking system safer for everyone.

Now, I’m not going to lie to you. It’s not going to be as much fun as reading a favorite murder mystery or, dare I say, Fifty Shades of Grey.

But I highly recommend you read this book because:

  • Nothing has changed. “As of this writing, in October 2012, this system does not appear to be better equipped than it was in 2000-2006 to limit the buildup of risks or than it was in 2007-2009.”
  • The average, responsible person has paid as steep price for the reckless behavior of others. “…in discussing the costs of the intervention politicians and regulators, like bankers frequently ignore the enormous costs of the crises to the broader economy—the loss of output in the recession, job losses, and hardships associated with foreclosures.”
  • You will be able to understand arguments that are used to scare and confuse people.

Admati and Hellwig’s recommendations for bank reform

  • Figure out which banks are insolvent and unwind them in an orderly way.
  • Higher equity levels should be required by law. Banks’ functions do not require so much debt. However, bankers’ compensation often gives them an incentive to borrow too much.

If you read this book you will be better able to understand arguments made by bankers, lobbyists, politicians, and regulators. We all need to stand up for safer banking practices. We need and deserve a safer, more stable economy.   ####

My post “Book Review- Exile on Wall Street: One Analyst’s Fight to Save the Big Banks From Themselves” discusses the banking industry from a bank analyst’s point of view.

I added some photographs of architectural details of a beautiful Providence, Rhode Island landmark. Old Stone Bank, founded as a mutual savings bank, is defunct. Click on any of the images to see a short slide show.

This gallery contains 6 photos