Jonathan Clements | November 14, 2020
THROUGHOUT THE DAY, we make countless snap judgments, often without realizing it. Think about navigating the grocery store. This involves a blizzard of decisions—which brand, what size, whether it’s good value, will it stay fresh—and yet we do so almost effortlessly.
Most of the time, this is a good thing. If we carefully pondered the assumptions behind every judgment we make, life would become painfully unproductive. Still, it’s helpful occasionally to question whether we’re misjudging the world, especially when it comes to major issues, financial and otherwise. Examples? Here are 35 assumptions we shouldn’t make:
- That people who are richer are happier.
- That a fund’s past performance will repeat.
- That other points of view are without merit.
- That endless relaxation is what we really want.
- That stock market investors—in aggregate—care greatly about anything other than interest rates and future corporate earnings.
- That our future self won’t regret the money we’re merrily spending today.
- That great companies will be great stocks.
- That an insurance agent is selling us the best investment products for our financial future.
- That an item on sale is a bargain.
- That our immediate reaction is the right one.
- That sophisticated investment products and strategies deliver better returns.
- That paying less in taxes is always financially smart.
- That silence means someone agrees with us.
- That the collective judgment of investors, as reflected in market prices, is wrong.
- That people who claim to beat the market actually have.
- That we’ll have the same high tolerance for risk when share prices are 30% lower.
- That we’re being rational.
- That investment experts pontificating on TV have any clue what will happen next in the economy and the financial markets.
- That friends and family are telling us the unvarnished truth.
- That material progress—the bigger house, the faster car, the next pay raise—will deliver lasting happiness.
- That a fee-only financial advisor has no conflicts of interest.
- That financial reporters fully understand what they’re talking or writing about.
- That how we think we’re perceived is how we’re perceived.
- That those who are most insistent or passionate are most likely to be correct.
- That extraordinary career and investment success is all about talent and hard work—and that luck plays no role.
- That last year’s insurance coverage still fits our circumstances today.
- That high investment costs are an indication we’re getting something special.
- That our home will be a great investment.
- That we instinctively know what will make us happy.
- That our life in the years ahead will be similar to today.
- That we know something other investors don’t.
- That people who appear wealthy actually are wealthy.
- That our recollection is correct.
- That our thinking isn’t swayed by the investment mob’s euphoria and despair.
- That, when the job is finally done, we’ll feel a lasting sense of triumph.
HERE ARE THE SIX other articles published by HumbleDollar this week:
- “The sunk cost trap is everywhere because we’re taught that successful people never give up, but instead always move forward,” writes Jim Wasserman. “Unfortunately, this can also lead to prolonged failure.”
- In the late 1990s, Andrew Forsythe wanted to invest part of his portfolio in individual stocks. His strategy: only buy stocks recommended by multiple experts. Result? It wasn’t good.
- “We may not be done with our simplifying,” says Brian White. “When I get tired of managing our investments, I’ll just move all our money into a Vanguard target-date fund or one of the firm’s target-risk funds.”
- Confused about the Social Security earnings test and about how benefits are taxed? Richard Connor offers a refresher course on both topics.
- “Your real benchmark isn’t beating the stock market,” argues Robin Powell. “Instead, it’s how you’re performing relative to the goals that you’ve set.”
- Worried about how much you spend on, say, vacations or private schools? It really doesn’t matter—provided you’re saving enough each year for retirement and other goals, says Adam Grossman.
Follow Jonathan on Twitter and on Facebook. His most recent articles include Future Shock, Scary Stuff and Irksome Adversaries.
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