Fuggetta ‘Bout It - A Winning Investment Psychology

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I’m sorry if I kept you on the hook from the last post… I was only trying to be dramatic in order to make a point.

There isn’t a magic account that few know about… that’s rarely the case in finance. There aren’t many new things, in fact, just the same time tested ideas packaged differently.

BUT… An exception to that statement is the Roth IRA; letting Americans take their IRA monies out TAX FREE was a wonderful NEW idea.

That second paragraph actually made me think of something related to time tested ideas, that I want to share with you. Last year I re-read 2 books on trading/investing that were first published in 1926 and 1929.

Minus a few references to technology and trade volume, if you told me either book was written last year, I would have believed it. The point is… very little has changed in the last 125 years when it comes to investing, the same time tested principles still apply. But I digress…

Untouchable

In the last post, I asked you, ‘if there was a type of account where you worry far less about the markets ups and downs, would that be something that interests you?’ The answer is: Of course it would interest you.

The account(s) I’m talking about are self directed retirement accounts; be it a Roth IRA, regular IRA, SEP, TDA, 401K, etc. Any place where you make periodic contributions, choose the investments and can’t touch the money for a long time.

And why do people tend to worry far less about these type of accounts? (generally speaking)

Psychology 101: Out of sight, out of mind.

Maybe an unrelated example will help.

Question: Why are gambling meccas like Las Vegas and Macao thriving, why do casinos do such big big business?
The answer you would think: Because the odds are in their favor and in the long run the house always wins.
The real answer: Because they substitute your cash money for chips; the chips are arbitrary and unrepresentative, they don’t mean as much to you.

Do you think the casinos would do any where near the business they do if people actually saw their real ‘hard earned’ money in front of them? I think not. The casinos capitalize on a simple premise: Out of sight, out of mind!

Retirement investment assumptions

Lets see why that concept rings true when it comes to our retirement accounts…

Retirement investment assumptions, in my opinion, have a much better chance of holding up because there is a built in mechanism to keep people from meddling… they can’t touch their money until age 59 1/2.

Because they can’t touch their money, people relax and tend to “fuggetta bout it” and they let markets do what they have always done over the long run… perform to a certain standard. Out of sight, out of mind.

Of course its still very important to make sure the investment allocation in these retirement accounts are suited for each person’s individual tastes; also, periodic re-balancing must take place. But this is all low maintenance stuff that’s made simple with the help of a good advisor.

Evaluate your options

Mind you I said this is ’simple stuff’ but so INCREDIBLY important over the long haul. In coming months, I plan on adding tools here that provide more tangible help for each unique situation. In the meantime…

If you are eligible and can afford to, think about opening a Roth IRA. If that’s not possible, think about opening a traditional IRA. If you are not eligible to make a deductible IRA contribution, even better… still contribute what you can, making it far easier to do a Roth conversion in 2010 or later. I feel like Bob Barker asking you to make sure you ‘get your pets spaid or neutered.’ Ha.

What a beautiful Friday here in NY… I think I’ll go for a run and a swim…

Tags: 2010 Roth IRA Conversion Event, Psychology Behind Financial Planning, Roth IRA Conversion, Traditional IRA