The Behavior Gap and Your Financial Health

How might it affect you?

Provided by Marc Aarons

“It turns out my job was not to find great investments but to help create great investors,” writes Carl Richards, author of “The Behavior Gap.” From increasing our budget mindfulness to taking a steadier approach to investing, Richards has drawn attention to how our unexamined behaviors and emotions can be to our detriment when it comes to living a happy and financially sound life. In many cases, we make poor financial decisions when experiencing panic or anxiety due to personal or widespread events. ¹

The Behavior Gap Explained. Coined by Richards, “the behavior gap” refers to the difference between a wise financial decision versus what we decide to do. Many people miss out on higher returns because of emotionally driven decisions, creating a behavior gap between their lower returns and what they could have earned.

Excitement When Stocks Are High. Whether in a bull market or witnessing the hype from a product release, many investors may feel tempted to increase their risks or attempt to gain from emerging investments when stocks are high. This can lead to investors constantly readjusting their portfolios as the market experiences upswings.

Fear When Stocks Are Low. In response to market volatility, investors may feel the need to choose more secure investments and avoid uncertain or seemingly unsafe investments. When stocks are low, a typical response may be to sell and effectively miss out on potential long-term gains.

Short-Term Anxiety and Focus. As humans, viewing aspects of our lives through the lenses of current circumstances is normal. However, one emotional response to any event is letting the moment consume us. Many may find it difficult to think long-term and remember. However, making a rash decision can inhibit the long-term benefit of maintaining a balanced perspective without reactionary behavior.

The market can go up or down at any given point, or it can remain the same. One thing we can control is how we handle our financial strategy. Remembering the likelihood of recovery over time — and the market’s nearly inevitable up-and-down movement — can provide a more logical angle to calm the nerves.

If you’re experiencing financial anxiety in response to the markets, take a breath and remember the potential for long-term gains. Of course, you can and should always reach out to your financial professional for further clarification.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com.

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MMI Disclosure: This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

^Citations

1. ^{BehaviorGap.com, May 16, 2022}

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Global mutual funds vs. international mutual funds.

 Provided by Marc Aarons at Money Managers, Inc.

 For investors who are looking to diversify their portfolio with exposure to companies located outside the U.S., there exist two basic choices: a global mutual fund or an international mutual fund.

By definition, international funds invest in non-U.S. markets, while global funds may invest in U.S. stocks alongside non-U.S. stocks.

Keep in mind that diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline. Also, international investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater price volatility.¹

 Make a Choice. The definition may seem clear, but what may seem less clear is why an investor might select one over the other.

An investor may select a global mutual fund in order to give her portfolio manager the latitude to move the fund’s investments between non-U.S. markets and the U.S. market. This may give the manager the flexibility to take advantage of shifting opportunities that could be present at any given moment.

By investing in a global fund, the challenge for the investor is that they may not know at any point in time their total exposure to the U.S. market, within the context of their overall portfolio.

 Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

An Inside Look. Some investors choose to manage their risk by setting the desired asset allocation for their portfolio and then identifying funds that are within those asset classes. For these investors, an international fund may make more sense, since it allows them to maintain a greater adherence to their desired domestic/international stock allocation.

Remember, asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss.

As you consider a global or an international fund, you should also be aware of the fund’s approach to the inherent currency risks. Some funds choose to engage in strategies that may mitigate the effects of currency fluctuations, while others consider currency movements – up and down – to be an element of portfolio performance.

Marc Aarons may be reached at (714) 887-8000 or Marc@OCMONEYMANGERS.com

 ^{MMI Disclosure}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

  ^Citations.

^{1 – world-exchanges.org/news/articles/world-federation-exchanges-publishes-2018-full-year-market-highlightspressrelease [2/12/19]}

The post Global vs. International: What’s the Difference? appeared first on Money Managers, Inc..