Money Management Skills

7

% %UDLQ IDWLJXH FDQ OHDG WR YHU\ EDG GHFLVLRQV ZKHQ ZH KDYH WR

make an offer on a house, choose a mortgage, or even agree to buy

DQLQYHVWPHQWSURGXFWIURPDVDOHVPDQ7KHVROXWLRQLVWRQHYHU

PDNHDELJLPSRUWDQW¿QDQFLDOGHFLVLRQZLWKRXWVOHHSLQJRQLW

This is one piece of conventional wisdom that can be explained

E\QHXURHFRQRPLFV

% $QRWKHUOLPLWDWLRQRIRXUUDWLRQDOEUDLQLVDWHQGHQF\WRIRFXVRQ

PRUHHDVLO\DYDLODEOHLQIRUPDWLRQ)RUH[DPSOHZHWHQGWRZRUU\

PRUHDERXWÀ\LQJLQDQDLUSODQHLIWKHUHKDVEHHQDUHFHQWFUDVK%XW

ZH¶UHLJQRULQJWKHIXQGDPHQWDOSUREDELOLWLHVWKDWWKLVHYHQWZLOO

RFFXUZKHQZHRYHUZHLJKUHFHQWHYHQWV

% The tendency to focus too much on recent events affects our general
VHQWLPHQW DERXW WKH HFRQRP\ ,W¶V ZHOO NQRZQ WKDW FRQVXPHU
VHQWLPHQWHEEVDQGÀRZVZLWKEXVLQHVVF\FOHV:KHQWKHUHLVDQ
economic expansion, people tend to be very optimistic about the
IXWXUH:KHQWKHUH¶VDUHFHVVLRQZHWHQGWREHYHU\SHVVLPLVWLF
:KHQZH¶UHSHVVLPLVWLFZHVWDUWORVLQJRXUORYHIRUULVN\DVVHWV
OLNHVWRFNV:KHQZH¶UHRSWLPLVWLFZHFDQ¶WEX\HQRXJKVWRFNV

% This cyclical optimism and pessimism also impacts the expected
UHWXUQRQVWRFNV:KHQVHQWLPHQWLVORZDQGVWRFNSULFHVIDOOWKLV
can be an excellent time to rebalance your portfolio by selling bonds
and buying more stocks—the opposite of what our emotions would
WHOOXVWRGR:KHQVHQWLPHQWLVKLJKDQGVWRFNSULFHVULVHWKLVFDQ
be a good opportunity to sell stocks and rebalance our portfolio
LQWRERQGV

% %XWWKLVLVDOVRYHU\GLI¿FXOWLWPHDQVWKDWRXUUDWLRQDOEUDLQKDV
WRRYHUULGHRXUHPRWLRQDOEUDLQ9HWHUDQLQYHVWRUVFDQGRWKLVE\
UHPLQGLQJWKHPVHOYHVRISUHYLRXVPDUNHWUHFRYHULHV2U\RXFDQ
choose investments that automatically rebalance and avoid the
HOHSKDQWHQWLUHO\

% 7KLVEHQH¿WRIDXWRPDWLFWRROVKDVEHHQRQHRIWKHPRVWVXUSULVLQJ

DQGSRZHUIXO¿QGLQJVIURPDFDGHPLFVWXGLHVRYHUWKHODVWGHFDGH