Improving Investor Behavior – Focus on the Right Number

Note

This article originally appeared in the Denver Post, December 16, 2018.

With the year coming to an end, 2018 has been a tumultuous one for investors. For the first time in 46 years, there has not been a clear winner in any asset class: from stocks to bonds, emerging markets to precious metals. As of this writing, none are on track to generate a better than five percent return according to a recent article from Bloomberg.

With all the attention focused on performance and prices, little appreciation goes to what we believe is a most desirable outcome for investors: income. Why do most people invest? Income. Whether you need that income today or tomorrow, most people invest with the belief that doing so will provide, maintain or improve their income. Read more

Steve Booren

Steve Booren

Steve Booren is the Owner and Founder of Prosperion Financial Advisors, located in Greenwood Village, Colo. He is the author of Intelligent Investing: Your Guide to a Growing Retirement Income and a regular columnist in The Denver Post. He was recently named a Forbes Top Wealth Advisor in Colorado.

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Improving Investor Behavior – Managing the Pain of Regret

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This article originally appeared in the Denver Post, November 18, 2018.

Regret may be the most enduring and damaging emotion investors grapple with during their financial lives. As financial advisors we see it from both sides: clients either regret having done something, or regret NOT having done something, or more often, both. Like a cancer, regret can crawl into all facets of your financial life and encourage you to make bad decisions. All too often, it’s successful.

What is regret? The way I see it, regret is the revisitation of past mistakes. Maybe someone hit the panic button as the market dropped, only to watch investments rebound in a short period. Perhaps they jumped out at a good time, but couldn’t decide on a “right time” to jump back in, missing out on would-be gains. Investors watch themselves do this over and over each time saying they won’t do it again. Then, when they inevitably do, the regret only deepens. This vicious cycle can pour over into other areas of life. How often have we heard the stories of someone betting their life’s savings just to have the outcome bounce the other way? Read more

Steve Booren

Steve Booren

Steve Booren is the Owner and Founder of Prosperion Financial Advisors, located in Greenwood Village, Colo. He is the author of Intelligent Investing: Your Guide to a Growing Retirement Income and a regular columnist in The Denver Post. He was recently named a Forbes Top Wealth Advisor in Colorado.

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Improving Investor Behavior: Managing Your Fears

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This article is set to appear in the Denver Post in about one week. We felt it was worthwhile to share with our clients now, given the events of the past few days.

Shark Week is among the longest running and most popular cable programs in history. First appearing 30 years ago in 1988, the show has since been watched and celebrated by millions. Why would a program about sharks and their danger be so popular? I think it plays on the emotion of fear, and more interestingly, people’s desire to be a little bit scared.

This is quite the paradox: some people enjoy engaging in an activity designed to make them uncomfortable. The same can be said for horror movies, especially at this time of year. In both circumstances, however, the fear is often wholly unfounded. Sharks are responsible for about six deaths per year, and I highly doubt zombies will be taking over the world anytime soon. Instead, people should be much more afraid of mosquitos with their death toll last year of more than 830,000 people.

My point is this: sometimes our greatest fears are the most unfounded. Whether it’s an oversized fish or monsters under the bed, our worst fears take up an oversized portion of our conscious and drive actions that can be damaging and counterproductive. Fear is a powerful emotion and one you must learn to rein in if you want to be a successful investor.

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Steve Booren

Steve Booren

Steve Booren is the Owner and Founder of Prosperion Financial Advisors, located in Greenwood Village, Colo. He is the author of Intelligent Investing: Your Guide to a Growing Retirement Income and a regular columnist in The Denver Post. He was recently named a Forbes Top Wealth Advisor in Colorado.

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Anxiety and Investing: Taking the Fear Out of Finances

The chances that either you, a loved one, or a friend have had an incident with, or an ongoing relationship with heightened anxiety are likely. Almost 20 percent of the population expresses some sort of anxiety disorder in a lifetime. It comes from a combination of genes and impactful experiences throughout life. Whether relatively mild, or the cause of full on panic attacks for the victim, it is a disruptive force.

Fear and worry can be associated with any number of events or circumstances, but I’ve found that finance can be a leading cause. This post is written for anyone who has anxiety around their money, or for those with a loved one who might. In either situation, it’s important to understand how to take the “fear out of finances.” In this three part series we’ll talk about how to Process, Plan, and Pursue more comfort and confidence in personal finances and investing, hopefully leading to decreased anxiety for those affected by this part of life.

As you get to know our “characters” by their “style of attachment” (the basis for how we think about and interact with our financial lives), I’ve written the characters to represent the extremes. You, or your peer / loved one, may not feel as strongly one way or the other as the examples, but you may find more similarities to one character than another. Wherever one finds themselves in the spectrum, they are not alone, and these processes can be put into practice for a confident future with your finances.

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Improving Investor Behavior – Fear of Missing Out

Note

This article originally appeared in the Denver Post, September 16, 2018.

When you are stuck in traffic on the interstate, creeping along, do you find yourself wanting to switch from one lane to another? Do you glance to the left and see the “fast lane,” and are envious of how quickly they are moving? You look for an opening, signal and move over to gain some speed… only to come to a stop. You then notice the car you were following in the lane to the right moves along past you. A few minutes later, it has moved way ahead, out of sight.

This is an illustration to which investors can relate. Making a move from one strategy to another – one that looks more attractive because it is moving along faster than you are –  often has the same frustrating result. As with driving, you may take the risk and make a financial strategy change to feel like you are getting ahead, only to find yourself coming to a stop since you made that investment at the wrong time, or for the wrong reason. This is FOMO or the Fear of Missing Out.

Buying an investment in today’s world is rather easy. From apps on your phone to Mutual Fund stores in strip malls, purchasing investments has never been simpler. What previously involved a call to your broker to make an investment purchase is now even easier with these multiple alternatives.  Investment companies, however, thrive on investors making changes whether it comes from transaction commissions or asset management fees.

Some financial companies encourage lane-changing behavior, where investors hop from one product or strategy to another, in an attempt to “beat the market.” Frankly, beating the market is a lot of work (and luck). You must buy something before the value rises, sell it high, and reinvest those dollars in the next low-value stock that goes up in price. One’s ability to do this consistently is practically non-existent. Yet people believe they can, spurred on by a variety of messaging we receive. The bottom line is that investing takes discipline.

We also know that FOMO has a close cousin: Comparison. Comparing is said to be human nature. We tend to examine what we have, make, how we look, and where we live to others. The funny thing about this habit is that there is never a winner. That is because there will always be someone, somewhere with more than what you have, look better than you do, have a bigger house, etc. The habit of comparison envelops people and can significantly harm their investment behavior. It plants the seed for FOMO and leads to comparing how fast you are going versus the person in the other lane.

I encourage my clients to measure progress. Are you on plan or target? If so, great! If not, what adjustments do you need to make to get back in your lane and make progress toward your destination? Measuring how far you’ve come is a much healthier measure than judging against perfection. Comparing yourself to someone else, or to an ideal, only generates negative feelings and emotions. Measure progress, not perfection.

At the end of the day, the only reason people invest and save is for income – either income today or income tomorrow. Attempting to grow your money pile bigger and bigger may sound appealing, but capital gains are an unreliable source of income. Trying to trade your way up the pile is a lot of work and a goal for which few have the skill and discipline to achieve. Most financial advisors coach people to build up a financial “retirement pile” then spend down or make distributions based on a “safe” distribution rate. Growth is an unreliable source of income, and that strategy can lead to unfortunate timing decisions.

On the contrary, stay focused on a strategy with a history of success. Ignore the whispering emotions of fear or greed, and you can reach your destination with a lot less “lane-changing risk.” We believe in investing in great companies with a broad business moat. They sell their goods or services to everyone, everywhere, every day, and share a portion of the profits with their owner-shareholders in the form of a dividend. Dividends may not be the only path for investor success, but if there is a better one, I have yet to find it.

Decide your destination and map out a course. Be very careful making those lane changes.

Steve Booren

Steve Booren

Steve Booren is the Owner and Founder of Prosperion Financial Advisors, located in Greenwood Village, Colo. He is the author of Intelligent Investing: Your Guide to a Growing Retirement Income and a regular columnist in The Denver Post. He was recently named a Forbes Top Wealth Advisor in Colorado.

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An Open Letter to Employers

There is a national debate right now on how to make 401k plans more effective for retirement plan participants. The question isn’t “how do we supply the workforce with access to retirement savings vehicles?”, but rather “Why are so few employees taking advantage of these important benefit offerings?” In the end, it’s about a lack of familiarity and trust.

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The 8th Wonder of the World – Compounding Interest

I would like to take a look at the concepts of compounding and inflation. The principles of the two are identical. One works for you in a positive growing way, the other in a silent negative manner.

Let’s take a look at inflation first.

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Dave Anderson

Dave Anderson

As an advisor, Dave Anderson places a high priority on developing strong personal relationships with his clients. Frequent communication is important so that he works from an informed and timely view of his clients personal and life goals, financial objectives, priorities and risk tolerance. Learn more about Dave here.

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Patience Isn’t a Virtue, It’s a Necessity

With the increased fluctuations and heightened volatility we have experienced in the markets in the past several months, I would like to share my thoughts and perspective.

I feel the most important point I would like to state is: short-term volatility is normal. We will look at some statistics shortly, but first I desire to express that volatility is to be expected. We do not let volatility sway our opinion of the investments we own.

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Dave Anderson

Dave Anderson

As an advisor, Dave Anderson places a high priority on developing strong personal relationships with his clients. Frequent communication is important so that he works from an informed and timely view of his clients personal and life goals, financial objectives, priorities and risk tolerance. Learn more about Dave here.

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Improving Investor Behavior – Myths & Language

Note

This article originally appeared in the Denver Post, June 17, 2018.

Many people believe the stock market is risky. It’s often described as a casino, using words like crash, falling, and my favorite Wall Street word: “correction” meaning falling 10 percent or more from a previous high price. My definition of a correction is a temporary decline, which is then followed and surpassed by a permanent advance.

I help people to understand that risk is a permanent loss, or (more likely) the permanent loss of your purchasing power. In reality, money has never been lost when invested in a broadly diversified portfolio held long-term. You can easily lose money investing in stocks, but capital is not lost by an investor who is willing to hold a well-diversified portfolio of quality equities through their normal, sometimes frequent, short-term declines.

So why is it that our society seems to hold the belief that stocks are fraught with risk – a clear and present danger – when history does not show an example of this? The historical evidence is on the other side. Could it be the contrary financial messaging you hear? Could it be selling fear has a more significant impact than selling discipline?

I think the fear is inherited. The terror of a stock market crash capable of wiping out a lifetime of savings is so ingrained that it brings back generational stories of the Great Depression in the 1930s. The Depression was indeed tragic leaving generational scars. Retirees fear to invest in the ownership of companies in the form of stocks because they can crash. No wonder less than 50 percent of our population has any investments in stocks.

Over the lifetime of an individual, it is not uncommon for stocks to increase in value upwards of 100 times since birth. I was born 62 years ago in 1956. The S&P 500 equivalent was at 44.43, and today it is approximately 2,700. That is 61 times higher in 62 years. The scenario is even more stunning today for a 65-year-old born who was born on January 1, 1953. At that time, the S&P 500 was at 26.18 – versus 2,700 today – more than 100 times higher (same source). To find out where the market was when you were born, search online for “S&P 500 historic prices by month.”

When you consider a typical retirement time frame, say 30 to 40 years, living costs could more than double for a retiree due to inflation. The real risk is running out of income. The rising tide of dividend income from high-quality companies can more than offset inflation over a three or four-decade time horizon. The myth, however, is that stocks are “too risky.” My question: “Where did you get that idea?”

Good investor behavior means paying less attention to the value of your investments and more attention to the income or dividends. Since 1960, the cash dividend of the S&P 500 has increased at a compound rate of 5.76 percent versus about 3 percent for inflation or the CPI. People shouldn’t spend their principal; they should spend the income from their principal. So why is there such an emphasis on the daily fluctuation of principal?

Could it be a belief that Blue Chip companies are like casino chips? In reality, ownership in American companies represents the direct ownership in the earnings, cash flow, dividends and net assets of the very businesses you frequent each day. Ownership can be in the form of your 401(k), mutual funds, ETF products or direct ownership in the actual shares of companies. Prices fluctuate on the stock market, but long-term values are driven by real earnings and real dividends, yet most people see stock prices as random and inherently unstable.

When you own shares of a company, you are an owner of that company. Good investor behavior means acting like an owner, not playing gin rummy. Rather than becoming fearful as a result of negative financial messages, look around and pay attention to companies that provide goods and services to you and your family. Owners of successful businesses typically win.

Steve Booren

Steve Booren

Steve Booren is the Owner and Founder of Prosperion Financial Advisors, located in Greenwood Village, Colo. He is the author of Intelligent Investing: Your Guide to a Growing Retirement Income and a regular columnist in The Denver Post. He was recently named a Forbes Top Wealth Advisor in Colorado.

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Invest in Businesses Rather than Renting Stocks

Most business owners can feel the pulse of their business. If you own a coffee shop for instance, you can go to the location, see and interact with your employees, touch your inventory, and keep your customers happily caffeinated. You can smell the aroma of your business. You can feel it.

What if you had that same feeling as a shareholder of a public company? What if you thought like an owner? Consider one that sells coffee. Yesterday, you did not own any shares of this company, but today you are an owner – a shareholder.  The feeling of being an owner of that company is divorced from owning a percentage or shares in a public company. Some may think those shares represent a lotto ticket that goes up and down every business day on some stock exchange, based on public consensus or what some analyst says or does not say about that company’s future prospects. Some almost consider it like a casino.

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Steve Booren

Steve Booren

Steve Booren is the Owner and Founder of Prosperion Financial Advisors, located in Greenwood Village, Colo. He is the author of Intelligent Investing: Your Guide to a Growing Retirement Income and a regular columnist in The Denver Post. He was recently named a Forbes Top Wealth Advisor in Colorado.

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