My last post, “Nailing Financial Predators,” may have left some feeling like an easy mark. But what if we could take our six natural human responses to persuasion and make them work in our favor? Well, we can. Here are some ideas on how to proactively take charge and shoot that inner, sitting duck:
1. Authority – If we respond to the perception that someone has expertise or power over us, it’s best to make sure that that reverence is actually warranted before heeding their advice. Seek out respected authorities on investing, such as Warren Buffett; who keeps his advice simple:
“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.”
2. Reciprocity – When someone does a kindness (even with ulterior motives), we are tempted to do something kind in return. What if the good starts with us? Seek out a helpful resource, such as Vanguard’s tips for becoming financially responsible and pass it on. Doesn’t that feel good?
3. Liking – We want to do business with people we like — there is no crime in that. Just make sure that they can: give objective advice, keep costs low, provide a plan that is thoughtfully personalized, explain everything – including fees, and not press for an immediate commitment. If they can make good on that, there truly is a lot to like about this arrangement.
4. Scarcity – Salespeople love to create a sense of urgency so we will be manipulated into prematurely pulling the trigger. What if we were to make attaining our goals the urgency — and the scarcity is time? Every day we fail to plan is one more day we lose. Stop procrastinating, make a plan and get at it already. The meter is running. Tools, such as Vanguard’s When Can I Retire? can be a great way to assess the current situation and start the process of goal-setting.
5. Social Proof – Because we tend to look to others to help us make decisions, this can get tricky if we turn to the wrong person. Luckily, facts have no feelings, nor do they lie. The Financial Industry Regulatory Authority (FINRA) has helpful resources to protect investors. BrokerCheck is a great tool to investigate the background of a financial professional and a firm. Make sure to look at the firm, as well. Why do business with a company that engages in questionable behavior? Also on FINRA’s site are the very useful Fund Analyzer and 529 College Savings Plan Expense Analyzer, which allow investors to examine the costs associated with different investment options. Remember Warren Buffett’s advice — keep costs low! For teachers, understanding the fees associated with their 403(b) plans can be like solving an open-ended riddle. Two great resources to help cut through the fog of ambiguity are 403bcompare and 403bwise.
6. Commitment and Consistency – Once we commit to something, it makes it uncomfortable to turn back on our word. Instead of committing to someone else’s agenda, what if we commit to ourselves, our goals, and the financial well-being of our families? When these become the motivation for our efforts — when we fear disappointing ourselves more than others — we can move in the right direction. Systematically investing every paycheck, treating investing as a bill that must be paid every single month, and increasing the amount every year — this consistency will turn commitment into meaningful action.
These six natural responses can be our best friend or worst enemy. The decision is ours as to whether to sit like a duck and let others take aim, or make our efforts reflect the goals we aim for. It seems like a pretty easy choice, doesn’t it?