THE BEHAVIOR GAP

Financial advisor and New York Times blogger Richards discusses “how to cope with fear and stay grounded when making financial choices.”

In an era of austerity and lowered monetary expectations, the author provides smart, simple methods for taking charge of your personal finances. He begins with the premise that “financial decisions aren’t about getting rich”—they are “about getting what you want—getting happy.” The one element investors must learn to understand and control to maximize personal contentment/financial security is their own investing behavior. Richards coins the term “behavior gap” to describe “the gap between investor returns and investment returns,” a phenomenon that occurs when individuals make decisions that work against their best financial interests—in fact, he writes, “all investment mistakes are really investor mistakes.” Investing is based in choice, and people need to accept responsibility for their actions instead of blaming external factors like a fickle market or troubled economy. The path to success requires managing emotional responses to recessionary downturns, which play on investor fear, and prosperous upturns, which play on investor greed. This allows for a more balanced approach to managing financial portfolios. Richards’ straight-shooting observations about cultivating fiscal self-discipline and awareness, embracing uncertainty and accepting personal fallibility seem like statements of the obvious. However, the obvious is often overlooked during turbulent economic times, which makes Richards’ book is a must for small investors serious about gaining control of their financial lives.

A solid, sensible guide for finding and maintaining financial stability in an unstable world.