Butler: Focus on the goal and the investments will fall into place

Professional golfers within 150 yards of the green focus only on the target (the flag stick) and forget any and all of the 21 so-called “swing thoughts” that come into play to create the perfect shots we see on television. In the same vein, mastering the mental challenge of investing by focusing on a goal is more important than understanding all the qualities and uses of various investment products. Gaining a clear picture of an investment goal is a first step, and what follows is a march to achievement that may, or may not, take place with certainty.

Annie Duke, a former poker player, author of “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts,” talks about the need to identify a goal and then determine the probability of reaching that goal. Staff Archives

Annie Duke, a former poker player, author of “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts,” talks about the need to identify a goal and then determine the probability of reaching that goal. What gets in the way of the “best laid plans of mice and men” is the fact that good luck can play a role in our success, which means that bad luck can lead to results falling short of expectations.

The starting point is to determine a clear picture of the goal — enough money to cover expenses throughout a retiree’s life. The next step, ruling out good and bad luck, is an assessment of different financial products with varying levels of expected risk and return.

Next, the investor needs to think about what bad luck they have had as investors weighed against the good experiences that have contributed to their current account balances. Assessing what caused success or failure is difficult. We tend to give ourselves credit for our successes and blame other factors for losses. For those selling out during the crash of 2008, it’s easy to blame the loss on banks and bond traders that triggered the worst crash in 70 years. Gains, when they have happened, could have been just the result of “status quo bias” or the catatonic state that makes it impossible to sell a winning stock or fund. Or, we could be patting ourselves on the back for buying a Bay Area residence 30 years ago.

Whatever. Some good luck can blur our assessment of what we should be considering going forward.

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Source:: The Mercury News – Lifestyle

      

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