Act Like an Investor, Not Indiana Jones…or a Caveman

Imagine you’re in a theater watching an Indiana Jones movie. Indy is in a cave searching for lost treasure with a male sidekick and a female love interest. Suddenly, the ground gives way and the sidekick falls into a bottomless pit, screaming to his death.

Trying to save herself, the woman grabs a vine dangling over the abyss, but her weight pulls the roots out of the ground. Beads of sweat form on her brow, her eyes wide with fear. You’re on the edge of your seat as her fear becomes your fear. Indy throws her a lifeline and pulls her to safety.

As the film continues, several more brushes with death stoke fear and panic, while other escapades elicit emotions like greed and lust. But in the end, it’s worth the emotional roller-coaster ride because the hero and his lady find the treasure they were seeking. And we feel the same sense of relief and security they do.

In a way, investing can feel kind of like putting on Indy’s hat, coiling his whip and heading out into the unknown — it can stir up the same primal feelings of fear, panic, greed and more. The difference, of course, is that stocks and bonds pose no real threat to our physical safety. And yet we often react to investment activity as if our life was on the line. We’re prone to letting the fight-or-flight response take over at the first sign of danger. It’s like we’re Indiana Jones — or, worse, cavemen driven solely by instinct.

For instance, if you’re a caveman and a saber-toothed tiger is about to attack, you might try to fight it off with your spear. If you don’t have a spear, then you’ll hightail it out of there and live to fight another day.

Stocks and bonds will never attack us with teeth and claws, but our inner caveman begs to disagree.  Have you ever felt as if you were investing in a sure thing? Have you ever felt, even though you were diversified, that during a market downturn your money was worth zero dollars? Did you get out of the market when the Dow swung nearly 1,000 points a few weeks ago?

These are all caveman reactions. Essentially, money is a replacement for the caveman’s shelter, firewood, meat and animal hides. If these essential elements are taken from him, the caveman is going to die.

To be a successful investor, modern men and women must not let Neanderthal feelings and reactions control them.

Emotions can sabotage the average investor’s hopes, dreams and aspirations. Just as fear of danger could have kept Indiana Jones from acquiring his treasures, fear can keep modern investors away from theirs.

The 21st-century is here. It’s time to turn our backs on caveman feelings and start to grow our 21st-century wealth.

(This article was originally published on NerdWallet.com)

The Stock Market Behaves Like a Fellini Heroine

I’ve always likened the stock market to a woman.  A certain kind of a woman, that is. Remember the Fellini films of the nineteen seventies? There was usually a gorgeous Italian woman who was adored and pursued by all the men around her. As desirable as this woman was, however, she was always loyal and passionate to her lover. Maybe a little too passionate, though.

In a scene where this woman is dining out with her husband, he has a roving eye and flirts with the waitress throughout the evening. Our heroine finally gets fed up, throws a drink in his face and kicks him in the shins with her stilettos. Her husband begs for forgiveness, orders her favorite desert and feeds it to her in a romantic way.  Everything’s fine until they stroll down the street, and he waves and shouts “hello” to an even more beautiful woman.  Well, that’s it.  His wife starts screaming at him calling him a no-good cheater and liar and hits him in the head with her purse.  He puts his hand up and tries to tell her something, but it’s too late. She spats in his face and kicks him in the shins again. While he’s hopping on one foot trying to tell her something, she turns and runs away from him.

He catches up to her and pleads with her to listen to him as she starts walking away. He grabs her and explains that the woman was his cousin, Sophia, who was visiting from Florence. Our heroine is released and, embarrassed about her behavior, starts to cry.  Her husband embraces her, and she starts to kiss him passionately, telling him how much she loves him.  (Of course, Sophia is not really his cousin).

Now back to the stock market.  We know that it can be emotional and illogical in the short term. Think about how the market reacted last Monday.  With China devaluing its currency, the Fed’s pending policy on interest rates and energy’s volatility, we saw a big drop in the markets.  Markets, like our Fellini gal, don’t like uncertainty and tend to overreact making everyone’s life miserable. The emotion, however, does not look at the positive indicators such as robust corporate profits, unemployment at its lowest in seven years, and soaring US home sales. Rather, markets focus on the weaker aspects of the economy, most of which has not even happened, but they fear it will happen. Mama Mia!

So like our beautiful Fellini woman, the market is volatile and emotional. In the short term, that is. Over the long term, it is rationale and rises with the ever expanding economy. The economy is abundant and not a zero sum game.  For instance, after World War II, the S&P 500 was priced at 14.  Yesterday, on September 2, it was priced at 1,949. That’s a 7.3% annualized return (and does not include the dividends which add another 2.5 percent or so to the return)! For that kind of return on my money, I’ll take a few kicks in my shins.

SoFi: Finance and Consolidate Your Student Loans

Did you know that one in nine student loan borrowers would eat a tarantula to pay off their student loan debt?  That’s according to Jillian Berman, a reporter who covers student loan debt for Market Watch.  In her August 28 column, she writes that many student loan borrowers would, in fact, do some sort of outrageous stunt to get relief from their college debt.

As our policy makers and presidential candidates debate how to manage our nation’s student loan debt, Social Finance is an option that you and many borrowers may not be aware of.

Social Finance (SoFi) is a crowd-sourcing program that is possibly transforming the way that we borrow money.  It was created in 2011 by a group of Stanford business students who wanted to help other business students.  With alumni investments, graduates were able to lower their interest rates on their student loans.  The program expanded nationally and this well-funded start-up has funded more than $2 billion in loans (including personal) to date.

Here’s how it works:  borrowers specify the loans they want to consolidate or refinance, and SoFi pays them off.  The borrower then pays off her debt to SoFi.  SoFi offers low rates (and in some cases, the lowest rates) which in turn lower a borrower’s monthly payments.  For instance, fixed APRs range from 3.50% – 7.2%, and variable APRs range from 1.90% – 5.19%.  You can refinance on a 5, 10, 15 or 20-year term.

SoFi, however, has rigid lending requirements.  If you’ve hit a bump in the road, chances are, you will not be eligible to refinance your student loans with them.  Applying, though, will not hurt your credit score.  Some of the criteria are:

  • You must have a four-year undergraduate or graduate degree from a Title IV accredited institution.
  • You must be in good standing with your current student loans.
  • You must have a solid employment history and a monthly cash flow.
  • You must currently be employed or have a job offer starting in 90 days from the time you apply.

If you meet these requirements, SoFi may be worth exploring to pay off your student loans at a lower rate.  If not, your good old bank is still a reliable institution.  Plus, it’s there to work with you if you need help managing your student loan debt.