The Cost of Being Human
The following article, by Betterment CEO Jon Stein, came out in the Huffington Post today. While the stock market swings like a trapeze artist – “for my next death defying trick, I’ll plunge from even greater heights…” – many investors are busy locking in losses, selling low after having bought high. This kind of self-defeating behavior is what behavioral economist Dan Ariely would call “predictable irrationality.”
It’s not what people would do if they were thinking rationally, but it’s what people do when their emotions get in the way of rational thought. We’ve seen it happen time and again.
David Swensen, of Yale’s endowment, recently wrote a commendable piece about this behavior for The New York Times. In it, he criticized the “mutual fund merry-go-round,” which does little to protect investors’ long-term interests.
Swensen makes a compelling argument for revolutionary change in the mutual fund industry, with aggressive regulation and fiduciary standards for brokers. These are great ideas that would help investors. He also advises individual investors to abandon over-priced, under-performing mutual funds and “take control of their financial destines, educate themselves, and invest in a well-diversified portfolio of low-cost index funds.”
This second part, about individual responsibility, sounds charmingly idealistic. It’s a little like saying the solution to healthcare costs is for people to eat better and exercise more. No doubt true, but unlikely to happen.
The reality? Even with the best of intentions, many of us are still going to panic and chase returns at the wrong time.
Goal-Based Investing: A Decade In Review
As we all look forward to and plan for the future, let’s stop and take a look at the past decade to see what we can learn from it.
Using Investment Goals at Betterment
Goal-based investing. The idea is prized among financial advisors—and our team at Betterment—but to the everyday investor, it’s often difficult to put into practice.
How We Use Your Dividends To Keep Your Tax Bill Low
Every penny that comes into your account is used to rebalance dynamically—and in a tax-savvy way.
Explore your first goal
Our high-yield account built to help you earn more on every dollar you save.
This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.
Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.
If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.