Investing and Campfires

Investing your personal savings wisely is simple, but it’s not easy. As investors, we act irrationally. We know what we’re supposed to do. We sell when the market is high and jump back in when it’s low. However, the evidence shows that even intelligent investors do the exact opposite. Why?!

Because our behavior is tied—more than anything else—to pleasure and pain.

Imagine a campfire. It brings warmth and pleasure as you get closer to it. But get too close and it will bring pain. As we seek the pleasure of an inviting campfire, our instincts protect us from the pain of getting too close.

Seeking pleasure and avoiding pain are hardwired to our behavior. This serves us well with fire, but not with investing our savings. Investors experience real pain when they see the value of their savings drop, and with the pain comes a strong desire—an instinct!—to get out.

Equally dangerous is the pleasure of seeing the growth in the market. Once they’ve gotten out, investors wait on the sidelines until things swing the other way. Then instinct tells them to jump back in. Sell low and buy high. As investors we know that’s exactly the opposite of what we should do, but the pain/pleasure instincts are strong.

They act against us.

But there’s an answer for our instincts…

Free Market Funds are built to combat the bad behaviors that destroy investor returns.

Coaching helps you identify the bad inclinations before you act on them.

Rebalancing is a disciplined approach to always selling high and buying low.

So enjoy the warmth of disciplined investing. Don’t get burned by bad behavior.

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