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Improving Investor Behavior: The Sharp Knife of Compound Interest

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This article originally appeared in the Denver Post, October 27th, 2019.

Anyone who has ever spent time outdoors understands and appreciates the value of a sharp knife. Whether stripping wood to start a fire, using it as a cooking utensil, cleaning a fish, or for any of a million other purposes, the trusty knife is an essential tool. But knives also have inherent danger as well. Used the wrong way, a knife can quickly put an end to a fun camping trip, or worse – a life.

With this in mind, let’s consider compound interest. For those who don’t understand the concept, compound interest is money earned on money spent or saved, typically expressed as a percentage. If you have a savings account, you’ve earned interest (albeit a tiny amount). This interest is compounded (i.e., multiplied) when the amount is left alone over a period of time.

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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.

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Improving Investor Behavior: The Price of Time

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This article originally appeared in the Denver Post, September 15th, 2019.

In previous articles, we’ve discussed time as our most valuable asset. With only 1,440 minutes per day, how we choose to spend our time and where we focus our attention deserves the same rigorous budgeting that managing money does, perhaps even more so. Money is a resource; there can always be more of it. But time is finite, and there is no getting it back once it’s gone… or is there?

There’s a well-known quote by American author H. Jackson Brown that goes, “Don’t say you don’t have enough time. You have exactly the same number of hours per day that were given to Helen Keller, Pasteur, Michelangelo, Mother Teresa, Leonardo da Vinci, Thomas Jefferson, and Albert Einstein.”

But I want to challenge the notion that we all have the same amount of time each day. Think about it like this: I doubt Michelangelo had to mow his yard. I bet Thomas Jefferson didn’t spend much time in traffic. And when Einstein showed up to the restaurant, they probably made a table available for him. 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.

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Improving Investor Behavior: Strengthen Your Financial Superpowers

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This article originally appeared in the Denver Post, July 21, 2019.

My son and I were in the car driving to the store as he struggled to plug in his phone with a USB cable. He flipped the cable back and forth a few times before it finally slipped in. “If I had a superpower, I hope it would be to knowing which direction I should use when plugging in a USB cable.”

Over decades of advising families, I’ve studied their investment behavior. From those who made mistakes to those who succeeded, a list of significant practices naturally came to mind. These “superpowers” help make investors successful. They can’t leap over buildings with a single bounce or see into the future (though this could be a pretty good investment superpower), but they do manage to achieve better than average results, almost as if by magic. What are these superpowers?

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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.

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Improving Investor Behavior – Managing Your Time Like Money

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This article originally appeared in the Denver Post, April 21, 2019.

As a financial advisor, I am typically hired by clients to help them manage their resources. Most often, these are financial resources including cash, investments, etc. Sometimes I help people to manage their business resources such as connecting professionals, encouraging action, and providing advice to help make sound decisions. But there is one resource that I help investors to consider, one that we all have, but tend to be terrible at managing.

That resource is time.

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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.

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Improving Investor Behavior – Learn to Love a Falling Market

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This article originally appeared in the Denver Post, January 20, 2019.

The financial markets have given investors quite a ride in the past few months. Not only have we seen a drop in the prices, but the volatility and multiple-percentage point days seems to have investors feeling a little seasick. The first thing queasy people want to do is to get off the boat.

This is precisely the wrong thing to do, and here’s why. Thinking fluctuation is bad for investors is an incorrect perspective. Volatility is the stock market’s way of redistributing shares of great companies to their rightful long-term owners. When markets fluctuate as they have in recent months, it is nearly impossible to divorce yourself from the emotional powers of fear and greed. The price per share does not matter unless you are buying that day, or selling that day. Other than some “entertainment value.” daily fluctuation should be ignored.

“What makes stocks valuable in the long run is not the market. It is the profitability of the companies you own,” said Peter Lynch in Worth Magazine in 1995. I agree with him. Over time, as corporations become more valuable, sooner or later, their shares will sell for a higher price. Our contention is you need to remember you own a piece of successful, profitable companies. 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.

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Improving Investor Behavior – Fear of Missing Out

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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.

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Improving Investor Behavior – The Prosperity Mindset

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This article originally appeared in the Denver Post, August 19, 2018.

Wealth is a mindset. In my years as a financial advisor I’ve worked with many wealthy individuals who have everyday-type jobs. From bus drivers to teachers, entrepreneurs to an administrative assistant at the Chamber of Commerce, I’ve learned that income is not the best determinate of future wealth. Instead it’s a mindset, one I like to call the prosperity mindset.

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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.

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Improving Investor Behavior – Make Steady Savings Your Strategy

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

There’s $15 on the line, and your buddy is stepping up to a 10 footer for a birdie on the 18th hole. It’s a slippery putt, but not slippery enough. As he takes his shot, human nature kicks in. “Miss it, miss it,” we say to ourselves. But there is no level of hoping or wishing we can do to have any measurable effect on that putt.

As humans, we do this a lot. We look at all manner of situations and hope for different outcomes. We hope the Broncos win. We hope to live well into our 100s. We hope the stock market goes up. In all of these situations, there’s very little we can do to affect what happens. We get so caught up hoping for one thing or another, that we forget the little steps we can take to improve our odds of success. Living to 100 is a hope; eating healthy and exercising is a choice. And when it comes to finance, choosing how much to save is far more important than hoping for better market returns.

Market performance tends to be the singular focus of investors and investment media alike. How is the market performing? What are the benchmarks doing? At what level are my holdings? All of these questions are similar in one regard: they are reactionary. They focus on elements that cannot be controlled.

Investment returns are important. The magic of compounding interest, sometimes called the eighth wonder of the world, is what helps rigorous savers be able to retire as millionaires. Regular old savings rates, however, can have a profound impact on the value of a portfolio over a lifetime. For compounding interest to work its magic, it has to have something on which to work. Consistency is a virtue, and it is an element YOU can control.

Life is filled with challenges, expenses, and emergencies, all of which can derail the best of intentions when it comes to saving. Having a method for saving becomes essential. Often that means “paying yourself first.” For example, can you have your employer automatically contribute to your 401(k) from your paycheck? Great! The sting of savings might hurt at first, but after a couple of months, you may not notice it. That’s the goal. We want to automate savings as much as possible. As a best practice, we encourage a 10-25 percent savings rate. The more you save, the better the outcome. It’s better to save 10 percent every month than 25 percent once or twice a year. Save until it hurts and make it a habit.

Pensions once made this easy for would-be retirees. Employees didn’t need to think about saving for retirement; it just happened. As retirement savings continues to shift away from companies and toward individual employees, making “saving” a routine becomes even more important. The great thing about Independent alternatives such as 401(k) plans is they allow you to contribute at your savings rate. You get to control how much you want to put in and where that money is invested, as well as take comfort in knowing that it’s your money, now and into the future.  These plans are designed to reward diligent savers.

Tomorrow the market may go up, down or sideways. No one knows which way it will move, and those who say they do are just guessing. The problem with guessing is that it is inherently inconsistent. Some days you’re right, and other days you’re wrong. How much you choose to save is controlled only by you. The consistency with which you choose to save is a decision over which you have complete control. The more you save, the less the market has to perform to end up with the same result. Steady savings over a lifetime helps take the “hoping” out of a retirement plan.

Praying to the golf gods won’t help us win the round. What we can do is take lessons, get a coach and practice. We can hit the driving range, and improve our odds that by the last hole it won’t matter if he sinks the 10 footer. Our goal is to stroll up to the 18th green a few shots ahead. This scenario relates to what consistent saving achieves. Make it a habit, practice it regularly, and watch your retirement account grow.

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.

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Social Media – Helping or Hurting Your Investment Behavior?

During a recent client meeting we ended up on the subject of social media, and the effect it can have on a business. Unfavorable press coverage led to an echo of bad news on social media among this client’s customers, and it was continuing to harm his business with no end in sight.

I was curious about the public’s persistent reaction, and why he believed the story was still in the news cycle many weeks later. Was his customer base being fickle? Were competitors spreading false and redundant stories? His response: social media. Once a key marketing strategy for his company, social media has quickly turned into a sore spot.

He explained that as the public hears about small incidents, they turn to social networks to share the information, which is then amplified and repeated, creating a snowball effect. Suddenly isolated incidents create nation-wide panic. The small problems become bigger than expected and a stampede occurs.

As a financial advisor I started thinking about how this applies to investors. Consider both DIYers and new investors, those who are not deeply grounded, long-term, experienced investors. Could social media be driving investors toward short-term thinking? Could it be the volume and loudness of media in general? Could this be pushing investors to make choices detrimental to the longevity of their wealth?

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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.

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The Future of Denver’s Skyline

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.

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