Why’d I Do That? Never Forget with the Investing Journal

The Investing Journal is a Betterment feature that allows customers to add personal notes to transactions.

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To our algorithms, your $1,000 withdrawal on May 17, 2014, is just another record in the database. But to you, it was a graduation present for your son or daughter, or cash for unexpected car repairs. The decisions and transactions you make in your Betterment account tell a story of your financial life, but until recently there was nowhere to record the color of that story.

The Investing Journal is a new Betterment feature that allows customers to add personal notes to transactions. This lets you document why you made a given decision, never forget what caused it, and help you learn more about yourself. And, of course, it helps us improve our advice by understanding the needs and motivations of our customers.

Record the “Why” of Your Decisions

The Investing Journal allows you to annotate each withdrawal or allocation change you make in your account. Any time you complete one of those transactions, you’ll see this optional form, which you can use to record a category and any details, similar to what you might write in the “memo” field on a check.

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When you review your transactions on the Activity tab, you’ll see your notes along with the normal automatically generated descriptions. As we expand the feature, you will see your notes show up in more places throughout the app.

By annotating your transactions with the Investing Journal, your Betterment account will become a more informative and transparent experience, reflecting your history and decisions. If you get to the end of the year and wonder how you ended up ahead of schedule or have some catching up to do, you can reference the series of decisions that got you there. You’ll never have to look at your statement at the end of the year and wonder, “Why did I withdraw $500 in February?” investing journal

Learn More from Your Experience; Never Forget Why

In addition to personalizing your financial experience with Betterment, recording the reasons behind your decisions is a great way to learn about yourself as a saver and investor. Seasoned investors will often cite their years of experience through business cycles and investing fads as the reason they are able to make good decisions today. It clearly helps to have witnessed moments of uncertainty and see that it turned out OK, or to have taken risks and felt the payoff. But research shows that investors often lack an accurate understanding of what has happened, and the lessons we learn can only be as good as our understanding of the facts.

Our memories are not a perfect record of what happened, and psychologists have shown that the errors are not random. For example, the peak-end rule originally offered by Nobel Laureate Daniel Kahneman describes how we typically remember the most extreme and most recent events in a sequence. Applied to investing experience, this would mean that investors typically remember the most extreme periods of gains or losses as well the most recent performance of their portfolio, but mostly forget the average periods in between. The problem is that these salient memories are not a good summary of the overall experience, so using them to inform decisions about the future is risky.

Another way our memory plays tricks on us is the hindsight bias, which describes how unpredictable events seem obvious in retrospect. For example, imagine a time when the market has declined 3% over the previous two weeks. It is very difficult to predict whether it will continue downward, rebound, or stay where it is. When looking back at how things turned out, however, many will be tempted to say, “I knew it all along!” Many well-designed experiments in sports, politics, and finance show that the outcome only feels inevitable after the fact. Our predictions in the moment are not nearly as good as we feel they would have been afterward. When we don’t put our predictions in writing, it’s easy to feel more prescient than we are and become overconfident as a result.

For customers who make frequent ad-hoc deposits or withdrawals, the Investing Journal can help to paint a clearer picture of where all that money is coming from and where it’s going. Consider a customer reviewing the progress she has made in the last year on her house down payment goal. She might discover by reviewing her Investing Journal memos that many of the unanticipated withdrawals were for car repairs. Identifying the total impact of those expenses could lead to creating a new more appropriate “Car Repairs” goal or revising the savings rate for the downpayment goal.

Using the Investing Journal to record your thoughts and feelings at the time of each investment decision is a great way to build a more accurate impression of your investing experience.

What Motivates You? Help Us Offer More Personalized Advice

Finally, we want to provide the most personalized advice possible to all of our customers. By asking customers to categorize the motivation for their actions (if they choose), we can differentiate between otherwise similar events. Consider one withdrawal motivated by fears about the markets and another being made to make a down payment as planned. The first is a good opportunity for us to encourage a buy-and-hold long term perspective to help maximize returns, while the second is cause for congratulations.

To offer advice that matches each of our customers’ needs, we need to listen and understand their goals and motivations. The Investing Journal is a small step toward an exciting future of doing that in a much more comprehensive fashion.

The Investing Journal turns a generic list of transactions into a personal history of your transactions. Recording the reasons behind each action you take helps build a more accurate understanding of your own saving and investing experience. And as we learn more about the motivations behind each customer’s actions, our data and behavioral team can continue to improve the Betterment experience.