The psychology of money

Money can make us anxious no matter how much we manage to save. 

Investors who succeed in building large portfolios and those with much more modest portfolios often share the same worry of whether they are saving enough – despite the difference in their wealth.


For instance, a New York Times article, I’m rich, and that makes me anxious, quotes a retired banker as saying: “I have more money than I had ever imagined, but I still worry – do I have enough if I live longer than I thought?”

This in turn leads to another question, how can an investor – no matter the size of their investment portfolios – reduce their anxiety about money?

A straightforward answer is to become as informed as possible about good personal finance/investment practices and try to realistically estimate how much you will need to save for your intended standard of living in retirement.

Here’s a few things to think about:

Anxiety-reducer one: Think about your retirement income years ahead

In April, Smart Investing began a series of blogs about how to create a “retirement roadmap”. Tips include setting your goals for retirement and then calculating how much you require to achieve those goals.

Hopefully, this logical approach will reduce anxiety about whether you are saving enough.

You may decide to ask a professional adviser to help assess how much is enough to save given your circumstances. And superannuation and retirement calculators, such as on ASIC’s MoneySmart website, may assist in working out how much retirement income your expected super savings may produce.

Anxiety-reducer two: Follow sound investment principles

A strategy for reducing your anxiety about money is to follow the fundamentals of sound investment practice.

These basics include setting an appropriate asset allocation and diversification for your portfolio; having concise, clear and realistic long-term goals; minimising investment costs; and avoiding emotional investment decisions. While investors can’t control the movement of investment markets or the emotions of other investors, these disciplined steps are under the control.

Anxiety-reducer three: Undertake thorough estate planning

A key way for many of us to ease anxiety about money – whether our savings are large, small or somewhere in between – is thorough estate planning.

Your estate planning should aim to ensure that your wealth efficiently passes to beneficiaries in exactly the way that you intend.

As investors build their wealth, their concern about what happens to their deceased estates tends to rise. Think about whether to take professional estate-planning advice for your circumstances.

In regard to super, look at whether to nominate preferred beneficiaries or make binding death benefit nominations. And it is a fundamental that you understand who is legally entitled to receive your super benefits. 

PLease contact us on Ph: 07 3340 5117 for assistance .

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.

Source : Vanguard  July 2018 

Reproduced with permission of Vanguard Investments Australia Ltd

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