Bad Financial Behavior and How to Avoid It!

Rollercoasters are fun – at the amusement park.  Not so much in your retirement account. And that’s where bad financial behavior gets costly.

You’ve probably heard tales of folks making a fortune in the blink of an eye – probably at some downtown investment seminar where they’re selling their system in the back of the room.  Financial behavior is often our worst enemy. Some people decide they can get rich by trading options.  Hey, the seminar speaker said you can do it safely! 

The temptation to jump on the money train is strong. But, before you start dreaming about yachts and mansions, let’s talk about why your financial behavior in the real world can sting you worse than that one time you tried to eat ghost peppers on a dare.

I. The Thrill of Chasing Big Bucks

Sure, the idea of striking it rich is as exciting as discovering a hidden treasure chest. But the problem is that gambling isn’t investing.  When the two get confused, is when things can get a little dicey.  It ain’t Vegas. 

But, it can be an emotional rollercoaster.  If you’ve ever been on a rollercoaster, you know the highs and lows. This is especially true for those (not so bright) who are continually check their phones to see how their stocks are doing.

Warren Buffett is amazing for a laundry list of reasons. One of them is the fact he never watches the stock market and freely tells people he hasn’t the slightest idea what ‘the market’ is doing – he pays little or no attention to price – yet, so many people watch little else (his writings are worth reading).

II. The Real Cost of Risky Business

Okay, let’s talk about the dark side of risky financial behavior and investments. It’s not just about losing money; it’s about what it does to you, as a person, and your family.

Stress and Anxiety. Constantly watching your investments can make you as anxious as a cat in a room full of rocking chairs. Stress can lead to health problems. Who needs that?

Relationship Drama. Your money habits can also strain your relationships. Money can be a touchy subject, and when your investments go south, your family and friends might start to feel the heat.

III. Forget About Perfect Timing

Talk about bad financial behavior.  Thinking you can time the market perfectly is like believing you’ll win the lottery if you keep buying tickets. It’s just not likely.

Market Predictions Are Tricky.  Yogi Berra once said that predictions are hard, especially when they’re about the future.   The truth: no one knows what the market will do. Maybe that’s why Mr. Buffett doesn’t worry about price.

Some people seem to have missed the tale of the hare and the tortoise.

IV. Diversification: Not Putting All Your Eggs in One Basket

Diversification is a somewhat overused word – I say that because most people regard it as simply spreading money around different investments.  I’ve seen people buy four different growth mutual funds thinking they were diversifying their risk when all they were doing was constantly replicating it.  There’s more to it than that.  You can learn more here if you’re interested.

Diversifying your investments in the right way can help protect you from major losses.  Just like a zombie apocalypse plan, it’s always good to have a backup.

Diversified portfolios often provide steady returns over time. Think of it like slow-cooking a stew rather than microwaving a hot pocket – it might take longer, but it’s worth the wait.

V. The Magic of Patience

In the world of finance, patience is the opposite of bad financial behavior. Patience can make a huge difference in your financial success.

Forget the phone quotes. Think long-term.  It can get to 30-below in Minnesota in winter, but they all know the sun will come back out in the spring – no one panics.

VI. Discipline and Learning

Discipline Is Key.  Discipline is far easier when you have a plan. The reason is simple: a retirement plan has already factored-in the periods of crisis.  Those with plans not only know what they are doing; they also know why they’re doing it and aren’t surprised by the detours.

So, sticking to a plan – good financial behavior – and not going off the rails when things get bumpy becomes much easier.

Keep Learning.  My dad used to say, “If you think knowledge is expensive, try ignorance.”

Education is like your secret weapon in the financial world. The more you know, the better equipped you are to make smart choices and avoid financial pitfalls. Caveat: don’t confuse entertainment with education. Little – virtually none – of what you see on tv or on your phone is education.  Always consider the source but remember, true education is more likely to be found in educational books. Read one lately?

VII. Real-Life Examples: The Consequences of bad financial behavior.

Let’s look at a couple of stories that show what can happen when financial behavior can go a little wild resulting in bad investment decisions.

The Dot-Com Bubble

Back in the late ’90s and early 2000s, it seemed like everyone was jumping on the dot-com companies. People poured their money into these stocks, thinking they’d get rich quick. When the bubble burst, many lost their life savings. Fad chasing seldom works. Kind of like all the buffalo going over the cliff.

The Housing Market Crash

During the housing boom, many folks were buying properties left and right, thinking it was a surefire way to get rich. When the market crashed in 2008, many found themselves drowning in mortgage debt. It’s like thinking you’ll get rich by collecting Beanie Babies, only to realize they’re not worth much after all. The main reason people think real estate is less risky than stocks is simply because they don’t see a daily price quote.  No wonder Mr. Buffett doesn’t check prices. Investments are investments.  Financial behavior is often what makes the difference.

VIII. Conclusion: The Tortoise was right – Steady Wins the Race

In the end, it’s all about staying cool, calm, and collected in the financial world. Chasing quick riches is a bit like trying to win the lottery – it’s fun to dream, but it’s not a solid plan. To truly succeed, focus on being sensible, diversify your investments, be patient, stay disciplined, and never stop learning. In a world full of financial storms, the smart financial behavior is being the calm and collected.  You wouldn’t build a house without a blueprint; why should your financial house be any different.

The plan is the key.


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Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor. He is also licensed for insurance as an independent agent under California license 0C00742.

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