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Investors behaving badly: What is loss aversion anyway?

Air Date: Sep 15, 2018

Bob and Andy explore one of the ways that investors could be accidentally hurting themselves: loss aversion. Recalling their conversation with Dan Ariely, a leading expert on psychology and finance, this is just one example of irrational investor behavior. Plus, a caller asks a frustrated, yet important question: Why pay fees for bad investment advice?


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Investors behaving badly – The concept of loss aversion is that we perceive financial losses to be 2.5 times more PAINFUL than financial gains are pleasurable. This idea helps to explain otherwise irrational financial decisions and behavior. Andy digs into the interesting ways this manifests itself and the potential risk to investors.

Ask Andy: Is it ever too late to start saving? – Tina calls in with this common question, as she is 14 years from retirement and only just started saving in her 401(k). Andy points out that of course it’s NEVER too late to start, and Bob has fun crunching the numbers to give Tina assurance that retirement is not out of reach.

Why pay a fee for bad advice? – Jane calls in looking for help on an all-too-common situation: She received some bad advice from her broker on a specific stock position and has lost a good chunk of money. Should she end the business partnership? Andy advises that even though it will be a difficult conversation, she needs to discover HOW her broker is paid and WHY he selected this particular investment.

Motorhome on the mountain – Andy sits down with his friends Jamie and Mary who share their story of reaching the goal of retirement, from how they decided it was time, to the reactions and support of their family, and how they plan on spending their retirement years.

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