Most investors are a walking contradiction. You cannot love both Hilary Clinton and Donald Trump; root for both the Yankees and the Red Sox; nor can you put grated cheese on linguine with clam sauce (shout out for all you hardcore Italians out there).
Some things just cannot go together. Don’t tell this to investors. Their belief systems would make a Sean Hannity/Lena Dunham marriage look like a match made in heaven.
People do so many things that directly go against their best interests. I love figs but every year I forget to cover my tree and end up with nothing but green leaves. Too many investors act this way with their money; with more dire ramifications than a fig-less summer.
Over the years, I have observed their contradiction-addictions, and here are some of the things I have found. Many investors:
- Think they don’t need life insurance because they think they are going to live; but take Social Security early, because they think they might die.
- Argue for tax cuts that benefit those who itemize, while they take the standard deduction.
- Want to cut government spending, but don’t want to touch the three largest elements — Social Security, Medicare, and national defense.
- Look for bonds that act like stocks when the market is up; and stocks that act like bonds when it is down.
- Research depreciating assets (like a car) for months before purchasing them, but have no time to deal with appreciating assets in their 401(k).
- Bargain-hunt for detergent and drive miles for a deal, but want to sell everything when the market falls 20% and stocks go on sale.
- Wouldn’t think of rewiring their house or performing surgery on themselves, but have no problem making decisions regarding their life savings without any professional advice.
- Pay 18% interest on a credit card, but leave money in the bank earning close to 0%.
- Analyze statistics for hours playing in fantasy sports leagues, but say they cannot invest because they are not good with numbers.
- Spend thousands of dollars on lottery tickets, but don’t contribute to their retirement plan.
- Cut wasteful calories and fat out of their diets, but pay enormous expenses to salespeople on their investments.
- Travel the world, but own no international stocks in their portfolios.
- Spend thousands of dollars on parties and summer camps for their children, but have no clue what a 529 college savings plan is.
- Feel the stock market is too risky, but start a restaurant that has about a 90% chance of failing.
- Say they would love for somebody to give them money, but don’t contribute enough to their retirement plan to receive a full company match.
- Go to therapy when they need personalized help with their emotions, but take investment advice from a stranger screaming on T.V.
- Yell at store clerks when they are moving too slowly, but think the investment advisor selling them annuities with a 4% fee is a nice guy.
- Love their kids, but have no will to designate legal guardians in case of an untimely death of both parents.
- Buy life insurance, but have no disability insurance (even though it is more likely to become disabled, rather than to die during the course of your working career).
These contradictions are far too common and are an immeasurable cost to investors that can’t be counted in just dollars.
The good news is these are all preventable with the use of a little more logic and the advice of an advisor who is looking out for your best interests. If you see yourself making these mistakes, we can help you break your contradiction-addiction.
A little bit of rational thinking can go a really long way.
Why not give it a try?
Source: My years of observing crazy things people think and do with their money.