Do you worry about your investments?

I used to review my investment portfolio at least once or twice a week and when it fell, I became concerned about losing money, and when it gained, I was happy about making money. A conversation with my advisor helped me understand that I was investing for the long term, not the short term, and that the market today is volatile. 

I am not alone in my obsession with my investments. One of the greatest challenges retirement planners face is relieving the anxiety their retired clients experience during market drops and other events that may affect their portfolios and potentially their income.

Because I understand that markets can be volatile, and I am investing for the longer term, I do not react with panic when the market goes down. Market volatility is the primary catalyst behind many bad financial behaviors retired investors engage in under stress, such as buying high and selling low, or divesting a portion of their equities to invest in stocks.

Understanding behavioral and cognitive psychological theory and conventional economics, we can use behavioral finance strategies to identify triggers that cause individuals to make certain—usually bad—financial decisions, and recognize past financial mistakes in order to avoid repeating them and putting their retirement income at risk. Here are some behavioral finance behaviors that you should be aware of as you think about your investments

·      People tend to view the possibility of recouping a loss as more important than the possibility of greater gain.

·      Investors tend to place too much worth on judgments derived from small samples of data or from single sources. For instance, investors are known to attribute skill rather than luck to an analyst that picks a winning stock

·      We have the tendency to attach or "anchor" our thoughts to a reference point - even though it may have no logical relevance to the decision at hand. For example, some investors invest in the stocks of companies that have fallen considerably in a very short amount of time. In this case, the investor is anchoring on a recent "high" that the stock has achieved and consequently believes that the drop in price provides an opportunity to buy the stock at a discount

·      We use mental accounting. Mental accounting refers to the tendency for people to separate our money into separate accounts based on a variety of subjective criteria, like the source of the money and intent for each account. According to the theory, individuals assign different functions to each asset group, which has an often irrational and detrimental effect on their consumption decisions and other behaviors.

·      Although many people use mental accounting, they may not realize how illogical this line of thinking really is. For example, people often have a special "money jar" or fund set aside for a vacation or a new home, while still carrying substantial credit card debt

·      The reason we do this lies with the personal value that people place on particular assets. For instance, people may feel that money saved for a new house or their children's college fund is too "important" to relinquish. As a result, this "important" account may not be touched at all, even if doing so would provide added financial benefit.

As we age, we should be seeking less risking investments, so that we can generate income, because having high risk investments, may be destructive in the long term

I know that I am uneasy when my investments earn low or show no gains in a flat economy, which can activate some of my behavioral finance actions (see above) that may also lead to bad financial behaviors. My advisor suggested to me that I could minimize losses by merely staying the course and resisting the compulsion to take on risk.

I assume that all of us who are retired experience heightened anxiety over their financial security at one time or another. A recent American College survey (pdf file) showed that more than 60 percent of us are concerned with market volatility significantly impacting their retirement income stream.

In a discussion with another investment consultant, I was told that the biggest problem faced by retired people is that many of us often over-estimate how far into retirement their savings will last, and don’t plan for unexpected expenses such medical care that accompany retirement. Minimizing risk and establishing a financial plan that meets one’s retirement goals without draining their savings prematurely requires planning and flexibility, as this is not always an easy transition for retirees

It is important to understand that until we begin withdrawing money from our savings, there is no impact on our portfolio. However, selling stocks right after a significant market downturn can lock in lower returns, which can negatively impact the longevity of a retirement portfolio.

If flexibility with retirement income is not possible, you can consider securing enough guaranteed income sources to cover your basic retirement needs—a strategy often referred to as flooring, which is usually accomplished through a combination of investments and insurance products such as bonds and annuities that can help provide a predictable amount of income each month in retirement to meet expenses.

Coordinating annuity or bond purchases with other consistent income sources, such as pensions, Social Security, or rental income can help provide reassurance during volatile markets, and allow retirees to focus on enjoying their golden years instead of worrying about meeting expenses.

Time goes by so slowly and time can do so much

Have you ever thought about time? In one day there are 86,400 seconds, or 1,440 minutes or 24 hours.

Have you ever been in a situation, where every second feels like an hour and every hour feels like a day? 

We have all experienced time that has slowed down or has sped up for us. So when do you begin to understand that there is so much time in a day.

You could have breakfast, lunch, and dinner on 3 different continents. 

You could outline the book you're going to write, start the screenplay adaptation, and watch "Gone With The Wind," before the sun even sets. 

Spend a day at work, and still have 16 hours left over. 

Or you could just think 60,000 different thoughts as you tool all over your community 

Hey, the record for climbing Mt. Everest is under 9 hours, leaving 15 to nap and go Yeti searching. There's so much time in a day. So much. 

What are you going to do with your time and your day? As you think about the time you have here is a great song to help you understand that Time goes by so slowly: Unchanged Melody

Grieving is a personal and highly individual experience

Death came to my home this year on December 24th and took one of our young friends from Australia who was visiting with us. He was part of our extended family who were here for a white Christmas and my 70th Birthday. Boges went skiing on the 24th and was injured, he said by a Snowboarder, who knocked him over and hurt Boges already injured knee.

He was in pain and because he had very strong medication for his previous knee injury, he many have taken some medication. Boges came home and he was in bad shape; he had been drinking as well to ease the pain. I spent the night talking to him about life, and he kept apologizing for his inability to walk or to carry on a cohesive conversation. We put Boges to bed around 11:30 and he went to sleep. The next day around 10:30 his partner Dan and I went to wake Boges up. We could see that he was in distress, there was no pulse and he was colder than the inside of my freezer. He had died in his sleep. As of yet, we have no word from the coroner as to cause of death. Boges was 40 years old. 

All of us were in deep shock. I called 911 and told them that that a young man had died. The police arrived shortly after and they were polite and understanding. A Victim Services officer arrived shortly after the police and she explained the process so we would know what would happen next. The coroner arrived about 45 minutes later and the investigation started. Just before the body was removed Dan went to see the body of his friend to say goodbye. Shortly after that Dan had to talk to Boges ’ mum. It was a very hard conversation, we were lucky Victim’s Services were still here when the phone call happened. The Australian Consul phoned later that night to see how the Australians were all doing. Both Victim Services and the Consul have been helpful to our Australian family in their time of distress.

Death of a loved one at any time is difficult, but at this time of the year, it is doubly hard. After the police, Coroner, and the Victim’s Services left, we started to focus on the children in the household. They were all upset, we answered their questions and were honest in how we all felt. We then changed the focus of the day to the arrival of Santa Claus and the celebrations of the next day.

Children are very resilient, although they are still upset, they focused on the good times they had with Boges and they fact he wanted them to have a good time while they were here in Canada.

There are five stages of grief denial, anger, bargaining, depression and acceptance are a part of the framework that makes up our learning to live with the one we lost. They are tools to help us frame and identify what we may be feeling. The more significant the loss, the more intense the grief. Everyone grieves differently

Grieving is a personal and highly individual experience. How you grieve depends on many factors, including your personality and coping style, your life experience, your age, your faith, and the nature of the loss. The grieving process takes time. Healing happens gradually; it can’t be forced or hurried—and there is no “normal” timetable for grieving. Some people start to feel better in weeks or months. 

For others, the grieving process is measured in years. Whatever your grief experience, it’s important to be patient with yourself and allow the process to naturally unfold.

In 1969, psychiatrist Elisabeth Kübler-Ross introduced what became known as the “five stages of grief.” These stages of grief were based on her studies of the feelings of patients facing terminal illness, but many people have generalized them to other types of negative life changes and losses, such as the death of a loved one or a break-up.

Michael Lindemann, former chief of psychiatry at Massachusetts General Hospital defines grief as:

sensations of somatic distress occurring in waves lasting from twenty minutes to an hour at a time, a feeling of tightness in the throat, choking with shortness of breath, need for sighing, and an empty feeling in the abdomen, lack of muscular power, and an intensive subjective distress described as tension or mental pain.

Intensive subjective distress. Yes, exactly: That was the objective description I was looking for. The experience is, as Lindemann notes, brutally physiological: It literally takes your breath away. This is also what makes grief so hard to communicate to anyone who hasn't experienced it.

One thing I learned is that researchers believe there are two kinds of grief: "normal grief" and "complicated grief" (which also called "prolonged grief"). Normal grief is a term for the feeling most bereaved people experience, which peaks within the first six months and then begins to dissipate. ("Complicated grief" does not—and evidence suggests that many parents who lose children are experiencing something more like complicated grief.)

The five stages of grief:

Denial: “This can’t be happening to me.”

Anger: “Why is this happening? Who is to blame?”

Bargaining: “Make this not happen, and in return I will ____.”

Depression: “I’m too sad to do anything.”

Acceptance: “I’m at peace with what happened.”

As my extended family, my family and myself experience these emotions as we have just suffered a loss, it helps to know that our reaction is natural and that we will heal in time. However, I have told my loved one’s that not everyone who grieves goes through all of these stages—and that’ it is okay.   Dan was full of life and there will be other friends who will write a proper obituary for him but for me, at this time I am focused on my family, my extended family from Australia and their well-being. For all of those out there that suffered the loss of a loved one recently, our hearts go out to you and to yours.

Changes

Incremental Changes

Incremental changes are generally improvements to yourself that go along your natural performance characteristics. A faster walk, more sleep, more focus, etc. that can all be classified as incremental changes. There´s seemingly a tacit assumption that incremental changes, are not where the "real" changes  are.

Radical Changes

Radical changes are new ways of doing things, that are substantially different than the old ways things were done. A new memory, taking on a    personality or a new way of looking at the world, becoming more or less religious, etc. might all be classified as radical changes. Many people talk about radical changes as though they are the (unspoken) goal of change.

Sustaining Changes

Sustaining changes can be either incremental OR radical changes. This is an important point; if a change can be either of the two, it cannot be synonymous with incremental change. Sustaining changes are improvements that improve performance along predetermined measures of performance.

Disruptive Changes

Disruptive changes, however, typically address issues that many of your close friends and family do not currently value.

Why It Matters

Understanding the differences between incremental, radical, sustaining, and disruptive changes has useful applications.

If you want to bring about change in yourself or in others, the differences between the terms can also be used to plan how to approach others who can help you change. Knowing the difference can also guide what you ask for to make the project a success.