Hi Friend,
Here is a wonderful list of Stupidities 'to get rid of' from Mr.Morgan Housel, titled '77 Reasons You're Awful at Managing Money'.
Please note italicised matter in braces is my comment.
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- You aced your SATs and went to an Ivy League school. You think this qualifies you to be a financial genius without realizing that the single most important skill in finance is control over your emotions, not control over a Greek formula.
- The single largest expense you'll pay in life is interest. You'll spend more money on interest than food, vacations, cars, school, clothes, dinners out, and all forms of entertainment. You do this because you don't save enough and demand a lifestyle you can't actually afford. The future owns your income.
- You think renting a home is throwing money away when for many it's one of the smartest financial decisions they can make.
- You hate finance, think it's confusing, and don't want anything to do with it. You do, however, love money. You see no irony in this.
- You think the stock market is too risky because it's volatile, without realizing that the biggest risk you face isn't volatility; It's not growing your assets by enough over the next several decades.
- You're unable to realize that a 10% return for 20 years generates more money than a 20% return for 10 years. Time can be a more important factor than return when building wealth -- and it's the one thing you have control over.
- You can't acknowledge the role luck plays when making the occasional successful investment. (Also true when worshiping investors who made one big call that happened to be right.) (Most real estate investments of ‘investing geniuses’ that we keep hearing about, fall in this category).
- You suffer from the Dunnig-Kruger effect, lacking enough basic financial knowledge to even realize that you're making mistakes. People's lack of understanding about things like compound interest and inflation can lead them to believe they're making good financial decisions when in reality they're tripping over themselves with failure.
- You seek advice from a doctor to manage your health, an accountant to do your taxes, a lawyer to manage your legal problems, a plumber to fix your plumbing, a contractor to build your house, a trainer to help you exercise, a dentist to fix your teeth, and a pilot to fly when you travel. You wouldn't consider doing it differently. Then, with no experience, you go about investing willy nilly, all by yourself.
- To paraphrase Carl Richards, you ignore history, basing your actions on your own very limited experience.
- You think financial news is published because it has useful information you need to know. In reality, it's published only because the publisher knows you'll read it.
- You don't realize that the guy giving advice on TV doesn't know you, your circumstances, your goals, or your risk tolerance. He doesn't really care about you, either. He just wants to be seen on TV.
- You work so hard trying to make money that you don't have time to think about, or plan, your finances. This is the equivalent to spending so much time buying exercise equipment that you have no time to exercise.
- You spend lots of money on material stuff to impress other people without realizing those other people couldn't care less about you(which includes a house as well).
- You have never been able to predict what the market will do next. This doesn't deter you from trying to predict what the market will do next.
- You don't learn vicariously from other people's financial problems. By the time you get the hang of making smart money decisions, your life expectancy rounds to zero.
- Your definition of "long term" is the time between now and the next bear market, whenever that is.
- You're investing for the next 50 years but get stressed when the market has a bad day.
- You think $1 million is a glamorously large amount money when it's what most people will need to cover their definition of a pretty mediocre retirement.
- You associate all of your financial successes with skill and all of your financial failures with bad luck.
- Rather than admitting and learning from your mistakes, you ignore them, bury them, make excuses for them, and blame them on others.
- You are unshakably certain about things you know very little about
- You think you're young, invincible, and don't need health insurance.
- You're part of the roughly half of Americans who can't come up with $2,000 in 30 days for an emergency, even though you're also part of the roughly 100% of Americans who will need to come up with $2,000 in 30 days for an emergency at some point in your life.
- You spent the last five years arguing why Keynesian/Austrian economists were all wrong (basically discussing rubbish, posing as if we are geniuses - all talk no investment). The S&P 500 (SNPINDEX:^GSPC) spent the last five years rallying 177%
- You think dollar-cost averaging is boring (Investing even when the market goes down) without realizing that the purpose of investing isn't to minimize boredom; it's to maximize returns.
- You work in a stressful job in order to make enough money to have a stress-free life. You see no irony in this.
- You let confirmation bias take control of your mind by only seeking out information from sources that agree with your pre-existing beliefs.
- You take something as mind-numbingly complex as the global economy and try to distill it down into small, elegant sound bites.
- You have a financial plan without realizing that life neither knows nor cares about your plan. Whatever your plan is today, reality will surely look far different tomorrow(be flexible in your planning as reality forces us to change often).
- You think that not changing your opinion about markets, the economy, and your investments is somehow noble, when it's really just shutting your brain off to the reality that things are always changing.
- You're unaware that the business models of the vast majority of financial companies rely on exploiting the fears, emotions, and lack of intelligence of its customers.
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Thank you.
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