The main focus of today’s discourse revolves around the inadequacy of conventional financial advice, which often fails to resonate with individuals seeking a more enriched and personalized approach to wealth management. We delve into the insights provided by recent research from Avantis Investors, which posits that tailoring financial strategies to one’s unique psychological traits—such as patience, risk tolerance, and loss aversion—can significantly enhance decision-making. Throughout the episode, we meticulously examine three primary personality traps that influence financial behavior, elucidating how these traits can dictate the manner in which one should manage their investments and savings. Furthermore, we propose actionable strategies intended to align financial practices with individual personality types, thereby fostering a more fulfilling financial journey. Ultimately, we assert that understanding oneself in the context of financial decision-making is paramount in transcending the limitations of generic advice, paving the way for a life replete with financial abundance and satisfaction.

Takeaways:

• The typical financial advice often fails to resonate with individuals seeking a richer life.
• Behavioral economists emphasize that personalized nudges can significantly enhance financial decision-making.
• Understanding one's unique personality traits is crucial for effective financial planning and investment.
• It is essential to focus on income generation rather than merely accumulating a specific account balance.

Welcome back to the Wealth Decisions podcast.

This is Brian, your financial advisor and life coach.

And today we're diving into a topic that explains why you might feel typical financial advice just doesn't stick for you.

You know the standard advice, save 10% of your income, don't buy latte auto, Enroll in your 401k.

These are what behavioral economists call nudges.

They are little pushes designed to help us make better decisions without forcing us to do any anything.

But here's the problem.

Most of these nudges are designed for the average person.

And as I often say, if you're listening to this podcast, you don't want an average life or an average retirement.

You want a richer life.

There's a recent report from Avantis Investors that posed a fascinating question, can personalization improve these nudges?

The answer was a resounding yes.

Today I'm going to show you how your unique personality traits will like patience, risk tolerance, and how you view losses change the way you should handle your money.

So let's talk about the three personality traps.

The research highlights that while we all want wealth, our brains are wired a little differently.

The report identifies a few key psychological traits that vary wildly from person to person and I want to focus on three of them in this episode.

As I describe these, ask yourself, which one am I?

Number one, Patience.

The time preference.

Some of you are natural savers.

You delay gratification easily.

You don't need a nudge to save.

You might actually need a nudge to spend and enjoy your life.

Others are present focused.

If you tell a present focused person to save for 30 years from now, they tune out.

The fix here is if you struggle with patience, don't focus on retirement.

Focus on financial freedom in five years.

Focus on short term milestones.

Shorten the growth goal post.

Number two is loss aversion.

We all hate losing money, sometimes more than we like gaining it.

But some people feel this ten times more intensely.

Standard advice says stay the course when the market drops.

But if you have a high loss aversion, that generic advice feels impossible to follow.

The fix.

You don't need a generic be brave speech.

You need a portfolio design that accounts for this anxiety before the crash happens.

Having the right mix of investments, not just for your age, but also your risk tolerance and risk capacity is crucial if you want to stay invested so you can reach your long term goals.

Number three is anchoring bias.

This is when you get stuck on a specific number.

Maybe you saw Your account hit 1 million and now it's 950,000 so you don't feel quite as good.

You're anchored to the high one watermark.

The fix we need to change the metric.

Stop looking at the account balance and start looking at the income that balance produces.

The difference in terms of income between a million and 950,000 is a much smaller number than the 50,000 that that portfolio dropped.

Stop focusing just on a number.

A lot of people have a number in their head of what they think they need to retire.

And sometimes as they approach retirement, all they do is focus on getting that number and not managing their risk.

I've seen this many times in my career.

So don't just focus on the number.

Focus on what that number can do for you in terms of income and have the right mix of investments for your stage in life, especially if you're going to retire in two to three years.

Now let's talk about why autopilot isn't enough now everyone loves automation in finance.

Auto enrollment and 401ks is a huge success story.

But the report argues that automation is kind of a blunt instrument.

So let's talk about decumulation, that scary word for spending your money in retirement.

This is where generic nudges fail completely.

When you're saving, the goal is simple.

Money more is better.

When you're retiring, the goal is complex.

How do I spend enough to be happy without running out of money?

If you apply a generic rule here, like the 4% rule, you're ignoring your personal biology.

If you're highly anxious, in other words, you have lost aversion.

The 4% rule might terrify you into eating cat food when you have millions in the bank.

If you're overconfident and you're risk seeking, that same rule might lead you to go broke at 75.

The fiduciary difference this is where the human element comes in.

In as a fiduciary, my job isn't just to pick funds for my clients.

It's to be the choice architect for your specific brain.

The report suggests that the best financial outcomes happen when we measure these traits and build a plan around them, not against them.

So how do we apply this personalized nudge to your life right now?

Here's your wealth decision for the week.

I want you to audit yourself on those three traits I mentioned earlier.

Step Number one the Sleep Test Risk and Loss if the market dropped 20% tomorrow, would you buy more?

Do nothing or panic?

Sell Be honest.

If you panic, your current asset allocation is likely too aggressive for your personality, even if the math says it's right for your age.

So dial back the risk until you pass the sleep test.

Step number two the Spending Nudge Patience if you're a super saver who struggles to spend, I'm giving you a reverse nudge.

I want you to set up a fun fund, an automated transfer to a checking account that must be spent every month.

Force yourself to enjoy all the money that you've saved.

Step number three the Social Nudge the report mentions that some people are highly influenced by what others do.

If you find yourself keeping up with the Joneses, curating your social media feed is a financial decision.

Unfollow the accounts that trigger your spend reflex.

That is a huge personalized digital nudge.

The takeaway from this advantage research is validating.

Money is not just math.

It is emotional, psychological and deeply personal.

Generic advice gets you generic results.

Personalized advice Understanding who you are, not just what you have, leads to a richer life.

Now if you're wondering how these traits apply to your specific portfolio, or if you feel like you're stuck in a savers trap because your personality type, reach out to me.

We can look at your plan through this behavioral lens.

There'll be a link in the description of this episode to schedule a discovery call with me.

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And once again, this is Brian the Wealth Decisions guy.

Thanks for listening and I hope to see you next week.

Sam.