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The Behaviour Gap

Date: 5 February 2016

I recently read Carl Richard’s book “The Behaviour Gap”.

Carl is an American financial planner who coined this term to describe the void between the returns that we as investors should make and the returns that we actually do make.

The book contains many anecdotal accounts of how the author and his clients have a tendency to make important investment decisions based on fear, greed, media reports, impulse, crowd mentality and other inappropriate decision criteria.

Carl advocates the following approach:

  • Write down your life goals (see below)
  • Write down the financial goals that will help you to achieve your life goals
  • Find a good adviser
  • Write down a flexible plan to achieve your financial goals
  • Review and update your plan at least annually

Life Goals are non-financial goals like:

  • Giving your children opportunities
  • Making your spouse happy
  • Having more time to go hunting (or whatever you enjoy doing)

Seems obvious doesn’t it?

Yet most people struggle to apply this simple process due to factors such as impatience, fear of confronting their financial position or needs, or a mistrust of advisers.

Many people feel trapped in a financial rut, however if you don’t change something, nothing will change. At the risk of overusing cliché’s….One definition of insanity is to continue doing the same thing but to expect a different outcome.

Often the first step is to change our behaviour – to stop doing things that are undermining our financial security and to start doing things that will improve our financial security. Just as there is no happiness pill, there is no pill for financial success and security.

One last cliché…….there is no silver bullet. There is no substitute for working hard, saving, investing sensibly, using debt wisely and following the above formula to financial success

General advice warning:  The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

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