Confessions of a Financial Adviser

by | Nov 27, 2017 | AHEAD OF THE CURVE |

Occasional ramblings and the odd insight from years of experience in wealth management and dealing with people.

 #1: I want it and I want it now

As I write, it is weather for a large roaring fire and an old favourite movie. In about a month’s time we will no doubt have the option of the classic Willy Wonka and the Chocolate Factory. I dedicate this Blog to Veruca Salt (1971 version).

 

 

Our in-built desire for instant gratification and how it can work against our best-interests in the long-term was the topic of a recent Metis Ireland video log. You can watch this again below if you are minded to do so.

http://metisireland.ie/financial-planning-2/

No doubt you will be pleased to hear that the suit fitted with no one noticing any physical discomfort that may have been experienced by yours truly!

Many years ago, psychologist Walter Mischel invented the Marshmallow Test where a child is presented with a marshmallow and a choice. Eat it now, or wait and enjoy two marshmallows later. What will the child do? This simple test and the research that followed proved that the ability to delay gratification is critical to living a successful and fulfilling life.

If you, like me, find this amazing then you need to read the book of the same name.

Or if you haven’t time (or can’t wait!), here’s a 3-minute introduction. Be sure to let us know your favourite – mine is the child who eats the marshmallow while receiving the instructions.

https://www.youtube.com/watch?v=QX_oy9614HQ

The way we are hard-wired to prioritise reward now rather than later makes sense genetically. Why save the marshmallow for later if you are at risk of dying of hunger or disease or attack by predator before you get to savour it.

Here’s a nice exercise for a dreary November afternoon – imagine yourself on a beach in your favourite destination in the world.  As Gary Connolly wrote in his Sunday Times column recently (link below), a certain area of the brain associated with pleasure lights up and can be picked up on scans when you do this.

 

 

Our brains have immense power and it is only natural that economists tend to assume we use our brains in a rational way to make logical and sensible decisions. However, if you are asked to imagine the exact same beach scenario 12 months from now, that same area of the brain doesn’t light up for most people. It turns out we sometimes use our brains more like this…..

 

 

Indeed, the recent Nobel prize winner, Richard Thaler, turns to Homer Simpson for inspiration when explaining the way this can work against us in the excellent book, Nudge. Homer is considering spending his Pension Savings on a big SUV. The conversation goes like this:

Salesman: Ok, here’s how your lease breaks down. This is your down payment. Then there’s your monthly, annnnnnnnd here’s your weekly.

Homer: And that’s it, right?

Salesman: Yup……oh, and then after your final monthly payment, there’s the routine CBP, or Crippling Balloon Payment.

Homer: But, that’s not for a while, right?

Salesman: Right.

Homer: Sweet.

So, what is the point of all of this. Let’s summarise:

  • Preparing and planning for the future is tough.
  • It’s really tough if it involves making sacrifices now.
  • It’s even tougher if the future is intangible and uncertain – such as, planning for the financial future of your family.

Our way of helping to provide some clarity is through building financial plans that visually map out your future for you and help you to consider the impact of various decisions and scenarios. We would be delighted to hear from you if you would like to discuss how this process may be able to help you.

A quote from the Sage of Omaha, Warren Buffett, seems like a fitting conclusion. “Predicting rain doesn’t count, building arks does”.

Here’s a link to Gary Connolly’s article if you feel like reading more in this arena

http://www.icubed.ie/media/2017/richard-thaler–why-the-future-you-is-not-a-stranger.html

Ian Cooke QFA MBA
Private Client Manager 

Disclaimer

Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.

All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts