emotional impacts<\/a> of each scenario. So let\u2019s say for example that you got out of the market now, and we are conserving perhaps 5% per year, and then the market did go up by a full 20% but you weren\u2019t in it. Odds are you might feel a little badly that you missed out on the additional 15% growth, but instead now alternatively le\u2019s say that you stayed in the market, and the market did experienced another 40 and 70% drop. In that situation wouldn\u2019t you fell a lot worst? Of course you would, in part because your lost will be far greater than the money that you might had gained. It\u2019s almost like going to a casino game where if you won, you won $15 and if you lost, you lost $70. Would you even play that game in the first place? Probably not, but even if you felt that you could afford a loss of that size, chances are you\u2019ll feel worst, why again because of the direction that your finances are moving. See when it comes to psychological impact the direction makes a much bigger difference than the actual net worth number, especially after retirement because at that point your entire mentality changes. And we also are going to be talking a lot more about that in today\u2019s show.<\/p>\nDavid Scranton: <\/strong>Now it\u2019s time to welcome back Drs. Ted and Brad Klontz. My apologies to both of you, right after the last segment I said Mr. And my producer yelled at me in my ear right between segments here. So, Ted I would like to ask you, what are some of the most common financial psychological disorders that you see when you talk to people?<\/p>\nDr. Ted Klontz: <\/strong>I think that the primary one\u00a0 deal with are people who spend more than they can, and what I mean by that is they spend more they can support. But in today age it has allows us, the world we live in allows us to spend more than we have and up to a certain particular point in time and then spending that we done is crushing.<\/p>\nDavid Scranton<\/strong>: Kind of sort of catches up with you after awhile if that happens, doesn\u2019t it?<\/p>\nDr. Ted Klontz: <\/strong>Yes and the second I would like is the most common is one where the people just refuse to pay any attention to it whatsoever. And I think the third would be the people who are afraid to spend anything.<\/p>\nDavid Scranton: <\/strong>Yeah that\u2019s interesting. The opts in spectrum again, the books ends, the people who spend too much and the people who are afraid to spend anything.<\/p>\nDavid Scranton: <\/strong>Let\u2019s talk Brad, about that middle category, the ones that just don\u2019t want to do any planning. They bury their head in the sand; they just don\u2019t want to do anything they are in denial. How do you deal with those, how do you help a person cope with that? And really refrain from burying ones head in the sand?<\/p>\nDr. Brad Klontz: <\/strong>Yeah, there are a lot of reasons for doing that and we\u2019ve done several studies on this, and one of them is category of beliefs surrounds money that\u2019s called money avoidance. And these are beliefs as most of our surrounds money comes from our parents or grandparents or culture around us. But they are built up of couple different types one is one that we would call anti- rich people beliefs. These are the beliefs that money is somehow evil or corrupt, or rich people are greedy, so there is this avoidance I don\u2019t want to become one of those people. Another belief pattern around that money avoidance cycle is…….<\/p>\nDavid Scranton: <\/strong>But Brad, you do understand that being very conservative station here that those people are mostly democrats and none of them is watching you speak right now so I just wanted to clarify that.<\/p>\nDr. Brad Klontz<\/strong>: Yes, of course, you are spat on. Research does show that there are some differences along clinical affiliation. But a big part of the message that a lot of the viewers already know is you can do incredible wonderful things with money. So, the degree of which you have this aversive sort of belief about money, all of our studies show that it\u2019s highly self destructive to your relationship with money.<\/p>\nDavid Scranton: <\/strong>So Ted, you come across somebody that is like this to money from a tactical standpoint. How do you help that person, how do you help that person when they just don\u2019t do anything because money is evil, money is dirty?<\/p>\nDr. Ted Klontz: <\/strong>Well one thing that we learn and we emphasize is words are cheap and the brain is not or very little affected by words. What we try to do is show them, in some kind of sensory way exactly what we are talking about. And my premise is that if people are not doing the right thing they just don\u2019t understand what the right thing do is. And it\u2019s because words don\u2019t give us that, we have to show them in practical terms what exactly what we are talking about, what it look like. I can tell you that you have a bad back, but if I can show you as a doctor your x-ray, you can get it and that\u2019s essentially what we do.<\/p>\nDavid Scranton: <\/strong>But, you know if it\u2019s about beliefs or value some of those things are at your core, they are much deeper. So, you can show people, you can tell people but Brad, I mean how you\u2019d get down to that values level, that belief level to get people to take the message and implement it?<\/p>\nDr. Brad Klontz<\/strong>: Right, absolutely and a huge part of that is knowing your story about money, because all these beliefs make total sense if you can understand the story from which they emerge. And so if you can look back in your family history and realise this aversion that you have towards spending or spending too much or thinking that money is going to make you happy. If, you can link that into a family story it really does empower you to understand how you can shift this family cycle for in many cases it has been going on for generations.<\/p>\nDavid Scranton: <\/strong>It\u2019s funny to hear you say that because it is true. Even when you are speaking publicly I always say, people don\u2019t always remember information they remember stories. And as educators, I am sure both of you realise that also. So, I hope the two of you have time for one more segment to stay with us.<\/p>\nDr. Brad Klontz:<\/strong> Absolutely,<\/p>\nDr.Ted\u00a0 Klontz: <\/strong>Sound great!<\/p>\nDavid Scranton: <\/strong>Excellent, We\u2019ll be back in just a minute!<\/p>\nDavid Scranton: <\/strong>If you are near or in retirement, head over to \u2018theincomegeneration.com\u2019 and download your special report written specifically for the needs of the income generation again those born before 1966. I am David Scranton and you\u2019ve been watching \u2018The Income Generation.\u2019<\/p>\nDavid Scranton: <\/strong>If you are a regular viewer and I certainly hope that you are. You know I talk often about the fact the financial market is driven largely by emotion. Ideally its emotion is in line with the economy and geopolitical realities. But as we\u2019ve talked about that hasn\u2019t been the case now for some time. Thanks mainly to the overused of financial steroids; artificial stimulus. What we\u2019ve discussed less frequently on the show is how personal financial decisions are also influenced by emotions, and how those emotions are also clouded by artificial, psychological factors. We see several examples already so here is one more.<\/p>\nDavid Scranton: <\/strong>We all like to believe that humans are forward thinking, but for the most part it\u2019s not true. People have an extinctive tendency to look backward more often than forward, and make decisions based upon what they see in the rear view mirror. The trouble though is that our view through the mirror doesn\u2019t go very far. If it happens more than two or three it\u2019s no likely to have much influence on the decision we make today. So, think about that in terms of the financial markets. It\u2019s been over nine years now since that they were trending consistently downward; that means last nine years the markets have been an upward swing. In being growth mood over that period and hitting new records throughout many many years, it\u2019s no surprise that all that most people can see in the rear view mirror and it has a big influence what they are anticipating down the road is an increase; is a steadily increasing market. You can think of your psychological rear-view mirror as a convex mirror. You know with one of those warning stickers on them which say objects may be closer than they appear. And they typically are closer than we realise, and fortunately stock market doesn\u2019t come with the same warning sticker as your pickup truck.<\/p>\nDavid Scranton: <\/strong>One of the psychological terms for all of this is normalcy bias. It will cause us to under estimate both the likelihood of a disaster as well as its possible consequences. Why? Because we are hard wired to believe things will continue to function the way they normally have. And what still looks normal to us through a rear view mirror right now is a growing stock market; a stock market capable of shrugging off bad news. But, as we\u2019ve just discussed may be changing, just as it changed in 2007 even though we can no longer see that far back in our rear view mirror. So yes, it\u2019s important to understand how psychology and emotion influence our response to that potential change.<\/p>\nDavid Scranton: <\/strong>Now it\u2019s time to welcome back one final time Financial Psychologist, Drs. Ted and Brad Klontz. You know as you heard our show today, we were really talking about the psychology of people of \u2018The Income Generation,\u2019 people who reaches age 50 years and over and how they suffer often times from things like normalcy bias, hindsight bias and it affects their investment decisions; when to buy, when to sell, do I stay the course, do I get out? Dr. Ted, how much of a problem you think that is, once people actually do accumulate a good chunk of money and get close to retirement.<\/p>\nDr. Ted Klontz<\/strong>: Well, my experience is that the more that they have the closer they are to retirement the greater the risk of them doing something that can jeopardize their future. And, what they do is really based on what they believe in, what they\u2019ve experienced and what they\u2019ve done with those experiences.<\/p>\nDavid Scranton: <\/strong>Okay, but Dr. Brad what do we do when we have students in the spectrum, one person that they panic, they over react, the markets down 100 points, they sell.\u00a0 And, then you get the other person\u00a0 that sat there in 2007, you know at the end of\u00a0 2007 seemed obvious was a financial crisis coming and they just sat on their hands and did nothing. You are dealing with two ends of the spectrum, I mean how do you deal with those, how do u differentiate those? How do you help those people?<\/p>\nDr. Brad Klontz:<\/strong> Yes, so I think the first part, and the most critical part is recognizing that human beings are utterly irrational when it comes to their approach to money. Their approach to investing and these behaviours are really driven by emotions, so whether it\u2019s a lot of excitement about a bull market that\u2019s taking off and you just want to jump in because you feel like you\u2019ve been missing out, or its intense fear that the market is taking. Just understanding that, you are wired to do the absolute wrong thing, when it comes to investing and your relationship with money. Knowing that that can give u caused to let yourself calm down that emotional brain and make more rational decisions, but it really starts with admitting that when it comes to money also wired to be crazy.<\/p>\nDavid Scranton: <\/strong>Very good point, but Dr. Ted, you know the solution that most people say is go get a financial advisor and of course as a financial advisor, I think is generally a pretty good decision. But you know, financial advisors are humans also so how can we tell if our financial advisors are making logical decisions or emotional decisions?<\/p>\nDr. Ted Klontz:<\/strong> Well, am if you call them and you are scared and they go me too, it\u2019s probably not a good advisor. But I think, and actually I had one do that during the 2007, 2008 crash, he happened to be my financial advisor he isn\u2019t any longer but he was.<\/p>\nDavid Scranton: <\/strong>I knew you would say that by the way, \u201che isn\u2019t any longer.\u201d<\/p>\nDr. Ted Klontz: <\/strong>Well the truth is most people leave a financial advisor because relationship breaks down not because of performance of the portfolio. But the idea is that planner tells you the truth about how money works. They prepare you for the news; that it\u2019s going to drop 500 points, 700 points. It should not have come as news to me as the client and that we have a plan for that. If I do my job as financial planner, I am not going to get those calls the market drops 700, 800, 1500. I will understand that there are, it\u2019s the sea sometimes there is the dip of the wave, you\u2019re at the bottom sometimes you are at the top and your job is to hang on keep steady as we go.<\/p>\nDavid Scranton: <\/strong>So it sounds like one of the best answers then\u00a0 is really for our\u00a0 Income Generation members watching the show to talk with their financial advisor and ask them what is plan if the markets are down a 1000, if they are down 2000. Do we get to a point where we stop the bleeding or what\u2019s your plan?<\/p>\nDr. Ted Klontz:<\/strong> Absolutely<\/p>\nDavid Scranton<\/strong>: \u00a0And I guess having a plan in advance is a big part of it that removes the emotions. I had a story and that\u2019s kind of a sad story. Right about 2007 where I felt like the market was really high, I saw the financial crisis right kind of on the horizon and I had someone who came into my office, whose brother happened to be his broker and I over begged\u00a0 him\u00a0 to reduce the stock market exposure as he was approaching retirement. I gave him words of wisdom to go back to his brother and to tell his brother look get me out and put me here. Of course he went to his brother and as u you imagine his brother talked him out of it. I bumped into this fellow a couple years ago and sadly, they weren\u2019t even talking anymore because his brother had talked him out of that and you know what happened 2008 with the markets. So Brad, where is the happy medium, where is the happy medium between\u00a0 somebody over reacts but may be the other person\u00a0 is so calm, they don\u2019t react at all, go write it down 58% that we say back in away.<\/p>\nDr. Brad Klontz:<\/strong> See, well you know I think that the advisors are just as human as investors are, and so a skilled advisor already sort of predicting what might be happening in the future. And, they are actually doing it for their clients, they are minimizing the potential down side, they are actually emphasizing that in varying visual ways. As Ted\u00a0 has mentioned ,where instead of talking about a percentage drop you are actually taking about so how you are going to feel if the market if you lose $200,000 in your portfolio? Because what we know to be true, and you know this to be true, what has the biggest impact on our financial wellness is not what happening the market is what we are doing and how we are reacting to that. That\u2019s where we messes up ourselves the most.<\/p>\nDavid Scranton<\/strong>: Yeah, how do we know Dr. Ted, what, how somebody is going to react, people are more motivated by the carrot; by doubling their money. Some are more motivated by the stick; not losing money. How do we determine which category each of us is in, to determine whether we really risk averse or maybe we are not going to be bothered if our money gets cut in half?<\/p>\nDr. Ted Klontz: <\/strong>Yes, I would say that if I am the client I am pretty much unaware of how I am either and if my financial planner does an extraordinary job of listening to me and listening my stories, my sense of it all then he will have a really clear picture of how to help me and what I need and be prepared. I caught the inoculation that financial planner can inoculate me so that the fever doesn\u2019t go as high and I don\u2019t get as sick and make kinds of decisions.<\/p>\nDavid Scranton: <\/strong>That\u2019s right; it\u2019s the financial advisors job to proactive and not an in order taker, I agree 300%. Gentlemen, thanks so much for spending time with us on and discussing this important topic. The book again is \u2018Mind over Money\u2019 by Drs. Ted and Brad Klontz. Thank you both very much.<\/p>\nDr. Brad Klontz:<\/strong> Thank you.<\/p>\nDr. Ted Klonz:<\/strong> Thanks for the opportunity.<\/p>\nDavid Scranton: <\/strong>We\u2019ll be back in just a minute with a lot more of \u2018The Income Generation,\u2019 stay with us.<\/p>\nDavid Scranton: <\/strong>If you are near or in retirement, head over to \u2018theincomegeneration.com\u2019 and download your special report written specifically for the needs of the income generation again those born before 1966. I am David Scranton and you\u2019ve been watching \u2018The Income Generation.\u2019<\/p>\nDavid Scranton: <\/strong>The focus of today\u2019s show gets back to a truism that I shared before on the show as well as in my books. And that is that most people simply aren\u2019t wired to be good investors. You see to be good investors you contrarian; you often need to follow the road less travelled and to do the opposite of what everyone else is doing. To be good investor you need to be in control over the basic human emotions that controls most of your investment decisions and that are primarily fear and greed. You often need to recognise that optimism that serves you so well in many areas of your life can actually work against you when it comes to investing and your hard earned money. In short, you need to understand that psychology plays a major role when your financial decisions and it does so in ways that are often difficult to even recognize or with little control.<\/p>\nDavid Scranton: <\/strong>So, how does all that\u2019s apply to what\u2019s happening in the markets today? Well again, just when you think all looking good, suddenly it\u2019s all looking bad, like that old \u2018 Hee Haw\u2019 sketch. With so much uncertainty and so much conflicting options about what comes next. How would you be sure that psychology is working in your favour and not against you when it comes to making financial decisions? Well, just being aware of all the psychological and emotional influence is a step in the right direction, arming yourself with education and information.<\/p>\nDavid Scranton: <\/strong>Another way is to actively work against negative psychology. Don\u2019t allow yourself to be controlled by fear and greed. Recognize when your natural optimism might potentially do you more harm than good.\u00a0 And, probably most importantly except that being a good money manager often means being a contrarian; it means doing things that are counterintuitive<\/em> and the opposite of what a lot of people are doing in that time. Think about it, you have lowered your stock market risk in mid January when stock market was in the midst adding another 6% growth to last year\u2019s 20% growth, wouldn\u2019t that at the time felt to be counterintuitive<\/em>? Wouldn\u2019t that happen been the opposite of what most people were doing? Absolutely so! But would be regretting that decision right now? I bet the answer is no!<\/p>\nDavid Scranton<\/strong>: And again, no one can say for sure that whether the markets are already on the brink of a third major market crash that would be them fall, I believe by ultimately 40- 70% or whether they\u2019re going to regain their falling\u00a0 and manage to add another 10 or 20%. But, even if it turns out to be the latter, the question becomes you\u2019re really going to regret missing out on that little bit extra gain, more than you\u2019d have regretted a 40-70% lost? I bet the answer to that is also, no! Which is why I would argue, that your contrarian decision would have been the right one, if you are retired or within 10 years of retirement. You no longer have to worry so much about whether the ultimate news for the market is good or bad, because you switch your focus to protection and income. By doing so, you are already doing what a good capitalist is doing. In other words, rather than just choosing to sit there crossing your fingers and toes and hopes that things are moving in the right direction you are taking charge of your portfolio. And with your portfolio now focused on secured strategies, insulated for market turmoil and designed to generate reliable income through interest in dividence, you could then watch all the chaos and uncertainty from the side lines. And if you want, you can choose to get back in again at the right time. That means buying back into the market when it\u2019s on sale, at a lower point, lower than it is today, some point during the next major market correction. It might once again seem counterintuitive and it probably won\u2019t be what everyone else is doing, but again that\u2019s the psychology of being a successful investor. <\/em><\/p>\nRecording during break:<\/strong> Read David J. Scranton ground breaking new book, \u2018Return on Principles- & Core Values to help Protect your Money in Good times and Bad.\u2019 Discover practical solution to the financial challenges facing today\u2019s generation of retirees and near retirees. Learn the truth about Wall Street, the financial media and the secrets they tried to hide every day investors. This isn\u2019t just another book about investing; working Americans will live through, two major stock market crashes and the worst financial crisis, since the great depression past sixteen years. Don\u2019t need another book about investing, David Scranton approach to financial planning is a holistic system designed for maximum protection, strategic growth and reliable income regardless of market conditions. Stop planning for retirement with your fingers crossed!\u00a0 Read \u2018Return on Principle, Seven Core Values help protect your money in good times and bad……..Available now!<\/p>\nDavid Scranton<\/strong>: So normalcy bias and optimistic nature and the tendency to feel complacent about your finances unless they are moving in the wrong direction. Those are all psychological factors that can work against your decision making process. But there are also some psychological influences that can work in your favour.<\/p>\nDavid Scranton<\/strong>: Early in my career, I had a client named Ed. Most people would probably seen Ed as the last man in the world that had a worry about his retirement fund, and the truth is he wasn\u2019t actually worried, but he was diligent. See Ed, was retired and had some $6 million invested municipal bonds, earning 6% interest. Can\u2019t get that anymore but that was the rate of interest available back then, as $360,000 a year of tax free income, and the good news to me his goals and to live the life style he wanted he only needed $150,000 a year. Ed has been a Vice- President if a major company, he is a smart guy and obviously he was playing smart financial defence in doing well. And every time we meet he\u2019d insists that I run through the numbers again and prove to him that he wasn\u2019t going to run out of money before he die. Finally one day, I said Ed why are you so insistent in going through these numbers with me every single time? His answer is something that helped shaped my business model for the rest of my career to this day. He said Dave, \u201cYou don\u2019t understand, when you retire your whole mentality, your whole world changes. You see all these years getting a pay check, going to work, getting pay checks, spending money, saving some money for, again your whole life. But then one day, you retire you give up that pay check and you give up that whole way of life. It\u2019s downright scary no matter how much money you have.\u201d And you know I realise since then that Ed was absolutely right. For all my financial expertise even at the time, I really didn\u2019t understand the psychology of retirement, why? Because I\u2019ve never been through it, in fact I was nowhere near it at the time, and if you are not retired yet you probably can\u2019t really understand it either.<\/p>\nDavid Scranton: <\/strong>Think about it, when we had that last major correction from 2007- 2009, odds are you were still working. And even if your saving took a hit, you still had your pay check coming in. In other words you weren\u2019t relying on your saving for income, but it you are retired now or close to retirement, the next major correction is like and feel a lot different and end up getting caught in the down draft, because now depending on your savings for income. And now you understand what that dependency feels like psychologically. For me, Ed really helped cement the concept about financial defence after protection and how those things should be number one priority for investors over the age of 50; members of the income generation.<\/p>\nDavid Scranton<\/strong>: I was already developing that business model based upon my research in the market history, which told me that we were back on the way in the 1990\u2019s to a long secular bear market cycle include at least three major market drops. And, we\u2019ve experienced two of those market drops so far as we\u2019ve seen a lot of fundamental, technical and historical evidence has started to suggest that a third may be close at hand, if not already on the way.<\/p>\nDavid Scranton<\/strong>: If that the case investors need to make good decisions and to understand how psychology can influence their decision making process for better or for worst.<\/p>\nDavid Scranton<\/strong>: Well, just want to thank both your guests for joining us for another episode on \u2018The Income Generation,\u2019 also I want to thank you, our new and returning viewers. The financial markets are nearly always inflicting to some degree, but we\u2019ve experience the last two months is unusual. Usual but not unprecedented, we\u2019ve seen periods of extreme volatility and uncertainty like this before. We\u2019ve seen high P.E ratios out of whack with economic growth and heard warnings about them. Still no one can answer the question for certain yet, will stock market rebound and start growing again, or have we already past the tipping point for that third sustained major market corrections since the year 2000? As you review the evidence and think about that question for yourself, be aware of how emotion and psychology make play in your answer, and your decision into whether or not to take action. Be aware that optimism can work against you when it comes to financial decision making.<\/p>\nDavid Scranton<\/strong>: Also, be aware that humans have a tendency to invest in rear- view mirror and that our view from that mirror only stretches back a few years. Be aware of normalcy bias, where we naturally expect things to stay the same. Know that normalcy bias undermines our ability to anticipate disaster or to prepare for it. Be aware that most of us are wired to be concerned about our own financial situation only when it\u2019s moving in the wrong direction. Also, be aware that mentality, your mentality changes once you retire, and that you can\u2019t really know what it feel like until you are going through it. And last but certainly not least; be aware that you can choose to have a handle on the emotion and psychology of financial planning and to control it more effectively than it controls you.<\/p>\nDavid Scranton<\/strong>: Thanks for watching, if you are close to retirement and you really, really, really want to know how to protect and maximize your money, it\u2019s absolutely essential that you stay informed and up to date today and right here is where we can do in on \u2018The Income Generation.\u2019 Thanks again and we\u2019ll see you next week.<\/p>\n\u00a0<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"