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The Psychology of Investing - For Retirement

The Problem - Humans don't like Change or Pain

Planning for the future requires change and some pain - you won't like it. You'll need to change your investment behaviour and this will usually mean reducing your spending. This behavioural change leads 'pain' as you will be missing out on immediate gratification (pleasurable emotion) that comes with spending.

In today's society there is a focus on the attainment of luxuries and delaying our gratification is something we don't do well. Marketeers have done a very good job in getting us to buy now rather than thinking it through. They also successfully prey on our vulnerabilities and emotions.

There is also a focus on remaining youthful (50 is the new 40!), which allows us to avoid thinking of ever growing older, so thoughts on our eventual retirement are often pushed aside.

The generation that lived through the Great Depression of the early 1930's learnt the hard way. They knew that saving for a rainy day was critical to their survival and their goals were simple - Get the essentials of food and shelter under control. For everyone who lived through the Great Depression this experience lived with them and influenced as to how they budgeted their weekly spending along with investing for the future; they knew it was vital to their very existence to get it right.

This combination of wanting immediate gratification through buying luxuries and wanting to remain youthful can cause us to delay making those key decisions to invest for retirement. It is essential to have some pain now, to ensure less pain in the future.

15 Steps to get the Retirement Planning on track for Financial Success

  1. Have achievable investment end goal
  2. Break the goal into smaller bits for example have short term, medium term and long term goals to achieve
  3. Thinking about it will not get you there. Having a good written plan will increase the chance of success
  4. Recognise when you relapse into old spending ways and learn from this. Know your weaknesses.
  5. Don't go for the quick fix i.e. risky investments. There is no such thing as a quick buck as there is a high chance of being burnt. Finding an easy option is our way of making it less painful but this strategy can lead to greater pain if investments are lost.
  6. Don't be too overconfident of your investment choices, make sure you get a second opinion and research your decisions on the internet before making a firm commitment.
  7. Find out what motivates you to Invest. Everyone has different motivators. Recognising motivators can provide for incentives to reach your goals.
  8. Visualise your investment goal. Make up a graph and draw pictures of where you are where you want to be and display it somewhere prominent as a reminder of your goal.
  9. Realise it takes time for behaviours to change including 'investment' behaviour. Give it time for the behaviour to become more stable and engrained.
  10. Re-evaluate your Investments on a yearly basis and adjust as needed.
  11. Avoid panic when your Investments change due to stock market falls and other hic-ups. Get good professional advice and have time to think through your actions. Avoid making impulsive decisions that you may regret later.
  12. You need to be aware of your emotion when making major decisions on your investments and how it may influence your decision making. For example, you may make a rash decision when in a bad mood, so avoid making decisions when you are feeling down.
  13. Reward yourself when you achieve your set milestones to encourage you on your investment journey
  14. Accept that despite good planning you are never completely in control of your investment outcome
  15. Talk to successful retirees and see how they achieved their goals. These people will help to keep you motivated.

As the old saying goes, "No pain no gain". With investing for the future, a little bit of pain now can avoid a lot of financial pain in the future.

Reproduced with permission from

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