In this episode of Inside the Plan with the 401(k) Brothers, Bill Bush and Andy Bush, advisors at Horizon Financial Group, talk about behavioral finance and statistics over a 20-year period of investing that JP Morgan has provided. They also discuss investment biases, the behaviors that impact your decisions, and how you can understand how to make better financial choices.
Episode Highlights:
- 01:00 – Bill Bush and Andy Bush talk about how your emotions during difficult financial times like the pandemic can affect your judgement and JP Morgan stats.
- 02:58 – What are the core emotions that impact investments?
- 04:42 – What does ‘mental accounting’ refer to?
- 06:48 – How does ‘herd behavior’ affect financial decisions?
- 08:09 – What is an ‘emotional gap?’
- 10:28 – ‘Anchoring’ is attaching a spending level to a certain reference.
- 11:24 – ‘Self-attribution’ is making choices based on confidence in personal knowledge.
- 12:42 – What is ‘disposition bias,’ confirmation bias,’ and ‘experiential bias?’
- 18:00 – Bill and Andy Buss discuss ‘loss aversion’ and ‘familiarity.’
3 Key Points:
- According to JP Morgan, the S&P from 1999 to 2019 has had an annual return of 6.1%.
- According to JP Morgan, in the S&P from 1999 to 2019 the average investor has only averaged 2.5% returns.
- Herd behavior is the tendency that people have to mimic the financial behavior of offers, or ‘the herd.’
Tweetable Quotes:
- “You think about investing and a lot of people will think about the emotions of it, right? There is greed, and there is fear, and then there is really confidence.” – Andy Bush
- “‘Mental accounting’ in referring to the propensity for people to allocate money for specific purposes.” – Andy Bush
- “‘Emotional gap’ is really when you are making decisions based on the emotions, right? There is a gap between how you feel and rationality.’” – Andy Bush
Resources Mentioned:
