One of the reasons why people find investing harder than they should is that human beings are hard-wired to focus on the here and now. We’re much more concerned about immediate threats than longer-term dangers such as failing to invest enough money for their retirement.
In this video, Professor Arman Eshraghi, an expert in behavioural finance at Cardiff Business School, explains how to develop a more disciplined approach to investing for the future.
This video was produced for IFAMAX Wealth Management, an evidence-based advice firm serving clients in Bristol and south-west England.
If you would like us to put you in touch with an evidence-based firm in your area, get in touch and we will try to help you.
If you are a financial adviser and would like to subscribe to regular videos such as these to provide your clients with the information and support they need, our colleagues at Regis Media will be happy to help you.
Video transcript:
Human beings are hard-wired to focus on the present. We’re finely attuned to the immediate threats around us. What we’re not quite so good at is dealing with long-term dangers, like not saving enough money for retirement. Professor Arman Eshraghi is an expert in behavioural finance.
Professor Eshraghi says: “When it comes to events that happen in the long-term, whether it’s going into retirement, etc. we don’t plan for them sufficiently because we don’t see them as sufficiently close.”
Thankfully, help is at hand in the form of financial technology, sometimes called fintech for short. The technology enables us to automate our retirement saving, so we put aside a set amount each and every month without even thinking about it.
“Fintech applications basically can allow you to automate your decision to invest in the markets without much thinking, so you really make a decision once, you make a commitment once, and then effectively, the process of investment gets automated — let’s say, every 20th of the month.”
Starting to save early for retirement is very important. But we should also increase the amount we put away each month as our income goes up. Committing to increasing our pension contributions as time goes by is another very valuable discipline.
Professor Eshraghi says: “Research by some economists in the US shows that there are techniques like “save more tomorrow”, so this is Richard Thaler, for example, who has talked about “saving more tomorrow”, which effectively means that you make the decision to invest a base level and then, effectively, you add to it a little bit every month. And without noticing the pain, let’s say. And then over time, this grows into a significant amount of investment which would then hopefully be a source of income for the long-term and for retirement.”
So, don’t give yourself an excuse to spend money that you should be saving for retirement. If you haven’t done it yet, automate your investing now. It’s easy to do, and in the years ahead, you’ll be very glad you did it.
Picture: Huy Phan (via Pexels)
