The savants are right, the answers lie within. The problem is that we keep seeking them outside, where instead of answers, we come up with more questions. Our financial dilemmas are a perfect example of this paradox: Why is it good to invest in equities though you are scared of risk? Why is too much handy cash bad when it feels so good to spend? Why can't you put off planning for retirement when it is so far into the future? Some answers are easy to tackle, others defy the rule book. Perhaps because the financial world is in a state of perpetual flux and the rules themselves keep changing. So the commission structure in mutual funds has gone and that in insurance is set to follow suit. The loan rates are changing fast and even the good old bank accounts are undergoing a revamp; interest rates will now be computed on a daily basis.
These are external factors riddled with opportunities and it's our response, comprising acumen and instinct, that dictates our success at exploiting them. While acumen is easy to acquire, it doesn't take psycho analysis to know that instinct resists change. You would rather shut out the change in the financial world A.R. (After Recession) and stick to the old economic order. But no matter how much you crave status quo, you must adapt to change, which requires that you be aware of your relationship with money. This is where Money Today comes in. We will help you know you better so that you can forge an affable bond with money. For this, you will first have to confront your financial personality and discover its mainstays, quirks and fetishes. We shall then suggest ways to strengthen your mainstays, overcome your quirks and tame your fetishes. The idea is not to change your personality dramatically—a mindset that has evolved over decades is not malleable—but to find ways to work around its shortcomings. We do not aim to convert, say, a spendthrift into a squirrel, but to reduce his cash in hand so that expenses are limited.
Admittedly, these changes are easier said than done, but this is what we are here for. After assessing the patterns of common mistakes made by investors, Money Today has formulated strategies for four financial personalities; spendthrifts, debt mongers, dodgers and radicals. Each plan is prefaced by a SWOT analysis of its characteristics to help you identify the one that fits you most. This is followed by a bid to understand the mistakes each personality tends to make and ways to overcome them.
To gain maximum mileage from the financial strategies, you must battle another psychological demon—defensiveness. All money attitudes are amoral: be it spending more or shying away from risk. So, do not fight a shortcoming or deny it. If you convince yourself to look at the problem clinically, you will adopt solutions faster.
As the analysis of the financial personalities reveal, cash, and by extension, money, leaves us anything but cold. Detachment and rationality are not associated with it at all. Put a relationship marked by such flagrant irrationality in an uncertain environment like the markets, and the results can be catastrophic. The grip on sanity loosens further and investors tend to make inane mistakes.
Our last section deals with these emotional eccentricities that relegate investing logic to the backseat. Based on the principles of behavioural finance, we map investor psychology at various market stages and demonstrate how to rein in the instincts like panic and exuberance. This should help you follow the financial rules that inexplicably fail you at the time of buying and selling stocks or mutual funds.
Finally, it is time to have fun with some tests that prove the mind's susceptibility to psychological traps. Each test exemplifies a fundamental psychological oddity that affects your investing decisions. Recognising them is half the battle won, but we also offer suggestions to overcome these tendencies and activate the dormant logic.
As you read the stories, you will realise that the biggest trick the mind plays is the masquerade of rationality. So you may think you are thinking logically when you are being influenced by emotions and biases. Our cover package should give you a good idea about the extent to which we can be bamboozled. Trying to beat the mind at its own game is not only profitable but also fun. There is only one problem—what if the logic we seek is not actually logical?
