In an article about how emotions can sabotage your retirement, Yahoo! referenced the documentary “Thinking Money: The Psychology Behind Our Best and Worst Financial Decisions.” This program presents the idea that, “According to the field of behavioral economics, humans are practically hard-wired to overspend and let their emotions steer their financial decisions (often in the wrong direction).”
Overpaying: Some of us prefer brand name items that are equal to or lower in quality to generic products because we want to buy into the prestige associated with the name.
Yahoo! points out that the same thing that happens at the mall or grocery store happens with investments. Instead of checking to see if certain investments are worthwhile, some of us invest simply because of name recognition or because we are led to believe we are getting in on something exclusive.
Trusting our guts: We hear a lot about trusting our own instincts and we are not saying you should ignore yours. However, we will point out that it is possible to confuse instinct with rationalizing a poor financial decision because you are choosing based on emotion.
Too many choices: The options for spending and investing money are numerous and for some of us this can be paralyzing or frustrating. Sometimes we make no choice; in other cases we choose something at random because we are overwhelmed. And since retirement seems far away it is easy to put off make a decision of any sort, Yahoo! notes: “This inability to select a choice from a wealth of options may be the reason why Americans are unlikely to save for retirement if their employer does not automatically enroll them in a plan.”
The need for an outside perspective is what leads some people to a Fee-Only financial advisor. You can benefit from working with a professional who researches sound investments and can remind you not to let your emotions take over.