Couple Money

Building Your Perfect Investment

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Yesterday afternoon Betterment‘s CEO Jon Stein hosted a free webinar with Carl Richards from Behavioral Gap on 5 steps to overcoming bad behavior and realizing your goals in 2012.

I joined in and took notes of the webinar. It had some helpful information that I wanted to pass on here.

Understanding Behavior Gaps with Carl Richards

In case you're not familiar with Carl, he's certified financial planner and founder of Prasada Capital Management, a portfolio design firm.

He contributes to the Bucks blog at The New York Times and is a columnist for Morningstar Advisor.

He's best known for writing (ok drawing) over at Behavior Gap where he explains the psychology of money with sketches.

He's also been on the other side of the table – he lost his home not due to lack of financial skills, but getting caught up with the bubble. He later looked back and decide to dig deeper and see how personal finances really works and how we can overcome our irrationality.

5 Steps to Overcoming Bad Behavior

Jon and Carl covered a lot during the webinar. There were some technical difficulties towards the end, but the first portion where Carl reviews his five steps came out fine.

He highlighted some ways that people can overcome their bad habits when it comes to investing and how it's possible to achieve financial goals.

  1. Evaluate & Set Goals: Carl emphasizes getting a snapshot of your current reality. Once you know where you're currently are financially he then says create specific goals about where you want to be . He points out setting goals around what you want to do with your money, reflecting your unique values.
  2. Be Realistic: You're Not Going to Beat the Market: You have to determine how to invest the money. We tend to take past and use it to predict the future, especially with stocks.
  3. Avoid the Gap: Investment returns vs investor returns – Carl show how we actually invest is so different from the reported returns. Many times human nature  has people buying and selling at the wrong times. Don't find the best investment, become a better investor.
  4. Automate: Automation helps us overcome our tendency to tinker with our investments when we shouldn't. It's not exciting, but it works.
  5. Keep It Simple: Think of creating a financial system as a set of guardrails to protect yourself from hurting your own finances. If it's a complicated system you won't be able to keep up with it.

I think Jon had some great points to add with Carl's tips. He shared his own story about investing in the wrong stock and how it made him realize that investing in the market rather than just stocks was the ticket.

Betterment- Option for You?

As Carl was explaining his tips and giving advice, Jon shared how Betterment could help people automate their investments and re-balancing their portfolio.

If you believe in passive investing, this could be the model for you. If you’re an investor looking for a simple, no hassle option, then I think Betterment could be a good pick for you.

If you’re interested, you can sign up for a new account at Betterment here.

Thoughts on Behavioral Gaps with Investing

Carl Richards has a new book out now – The Behavior Gap if you want to see more of his thoughts and sketches about finances.

If you’re handling your own investments, I’d love to hear your thoughts. How do you minimize behavioral gaps when it comes to your own investment strategy?

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