Most people have some money saved for their retirement. Whether this is in superannuation or across other investments, they have generally thought about their retirement and are preparing for it. The issue is that many people are not proactive about their super. Each year, or each month, they get a balance statement, and if they see it has gone up, they are happy and think ‘I’m on track’. Unfortunately, that is not enough. The fact that the balance has gone up is actually irrelevant to whether or not it will be enough for them to retire with.
People put a lot of focus on the price of assets; specifically the price of shares.
Why is it so hard to fix our mistakes? Sometimes, decisions are not black and white – especially when it comes to our finances. We have many decisions to make when it comes to our financial future – but we get things wrong sometimes. The second part of our ‘biases’ mini-series explores our mistakes and why they can be hard to fix.
Everyone knows that company share prices go up and down – that’s a fact. What we don’t know is why they do – that is, what external events will affect the share market and when. Of course, there are people devoted to doing this for a living, and some people are more informed than others about trends in the market. What we are saying is that it’s not possible to predict exactly when a crash or a boom in the market will happen – the only thing we know for sure is that it will.
This is a pretty common question we get from our clients. It’s an understandable fear, given that market volatility is real. Fortunately, the situation is not as dire as it seems – even if you happen to retire the day before a big crash in the market.
We’re going to get a little philosophical here and make this statement: people in the modern world want lots of choice in their lives. They want options when it comes to making decisions. And with modern technology, information is abundant – providing so many options for everything we do.
This is the first in a 4-part series about human biases.
Human beings are funny creatures who do some strange things, including making mistakes. But there is some consistency around the mistakes we make. We have several biases that are obvious when it comes to our decision-making. And we want to discuss these biases in relation to financial decisions.
This week, we have a listener question from Linda. Linda and her husband live on the Sunshine Coast and are 5 years away from retirement. They have $200,000 in cash and her question is whether they should invest the money into superannuation, or use it to build a 2-bedroom cottage on their existing acreage, allowing for dual occupancy. The detached cottage would provide an income stream for Linda and her husband over the next 5 years and continue into their retirement. Linda and her husband might move into the cottage later on in life and rent out the main property instead, for about $600 a week.
Think about term deposits. What words or phrases come to mind? How do people often describe them? Safe. Secure. Low-risk. Guaranteed return... Today, we’re going to prove why these descriptions are problematic.
You’re entitled to your own opinion, but you’re not entitled to your own facts: one of Dallas’s favourite sayings of all time.
Dallas Davison, Michael Hogue and Ali Hogue.