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Your rational and emotional minds are at war every day. When your emotional mind wins, it causes you to make boneheaded financial decisions that jeopardize your retirement. 

Changing your environment helps you take back control over your emotions set on destruction. In fact, even heroin-addicted veterans kick their addiction overnight when they change their environment.

In this episode, you’ll discover how changing your environment helps you make smarter financial decisions and protect your retirement.

Listen to this episode now before your emotions sabotage your retirement.

Show Highlights Include:

  • How veterans kicking their heroin addictions overnight help you see better returns in the market (3:33) 
  • The insidious way subliminal messages in the media sabotage your retirement nest egg (5:20) 
  • How your emotions dupe you into making boneheaded financial decisions when you know better (and how to gain control over your emotions) (6:24) 
  • How to adjust your investment portfolio when the media won’t shut up about market downturns, volatility, and variability so you don’t undermine your retirement (7:09) 
  • The subtle “anti-emotion” mindset shift that gives you control over your emotions and protects your investments (8:54) 
  • The “Double D” investing strategy that maximizes your savings in retirement (9:29) 
  • Why you don’t need any more self-control than an addict to make more profitable financial decisions (13:08) 

To schedule your free retirement tracking meeting, specifically for first responders, head to http://pensionattention.com/, call us at 805-409-8150, or text track to 805-409-8150.

Read Full Transcript

Welcome to Pension Attention, the best show for first responders who want to take control of their finances.

After advising Los Angeles city firefighters for over 12 years, financial advisor, Brad Barrett now shares how you can grow your wealth, build your legacy and enjoy a life of freedom. And now here's your host, Brad Barrett. [00:19.9]

Brad: Welcome to Pension Attention, the show for you, first responders who want more out of their deferred compensation and pension plan. My goal with this podcast is to reach you where you are. At whatever stage in your career, you are in, in order to provide my nearly 15 years of experience working with both active and retired service members on their investment and retirement planning. My team of fiduciary advisors here at One Capital Management are dedicated to ensuring you take control of your finances and build the life you deserve. And before we get started on this week's episode to find out more about me or my team here at One Capital Management, you can go to our website PensionAttention.com or give us a call. You can call us at (805) 410-5454. [01:11.0]

And for this week's episode, as we head into the end of the year, thinking about obviously the holidays coming up, the new year's resolutions, that everyone tends to wrap their minds around. I wanted to address a few things that we've heard from our clients from perspective clients that have called in for our discovery meetings and our retirement track review meetings that we offer to everyone listening. And it's largely around the emotional aspect of investing and typically habitual natures when it comes to how we perceive money. And we're gonna answer and go through a couple ideas on this week's episode around how to protect portfolios and what to do during market volatility or market variability. But I wanna talk about habits first. There is a great book that I actually just finished for the second time. I've referenced it before on this podcast, it's a book by a guy named James Clear and it's called Atomic Habits. And he talks a lot about the behavioral psychology and our human nature to create habits. And as an excerpt from atomic habits, as I was reading through it and finishing it up a couple weeks ago, it got me thinking about writing for this episode and how habits can play a large role in how we perceive our financial life. [02:38.8]

In 1971, as the Vietnam War was heading into its 16th year, Congressman Robert Steele, who was from Connecticut and Morgan Murphy, who was from Illinois, they made a discovery that stunned the American people. While visiting the troops. They had learned that over 15% of U.S soldiers’ station, there were heroin addicts, sad. Following up this research, they revealed that 35% of service members in Vietnam had tried heroin and as many as 20% were addicted. The problem was even worse than they had initially thought. This discovery led to a flurry of activity in Washington, including the creation of the special action office of drug abuse prevention, which was actually under president Nixon to promote the prevention and rehabilitation and to track addicted service members when they returned home; Lee Robbins was one of the researchers in charge. Now in finding that completely upended the accepted beliefs about addiction, which is wild. Robins found that when soldiers who had been heroin users returned home, only 5% of them became re addicted within a year and just 12% relapsed within three years. [03:54.2]

In other words, approximately nine out of 10 soldiers who used heroin in Vietnam, eliminated their addiction nearly overnight. Now Robin's findings contradicted the prevailing view at the time, which considered heroin addiction to be a permanent and irreversible condition. Anyone living in those time periods knew that that was a problem and a somewhat of a pandemic that was going on, especially with our youth. You had to remember a lot of these service members were 18, 19, 20-year-old men. So instead, Robins revealed that addictions could spontaneously dissolve, if there was a radical change in the environment. Now in Vietnam, soldiers spent all day surrounded by cues, triggering heroin use. It was easy to access, they were engulfed by the constant stress of war. They built friendships with fellow soldiers who were also using the drug and there were thousands of miles from home. So once a soldier returned back to the United States, though, he found himself in an environment devoid of those triggers. So, when the context changed, so did the habit. [05:01.2]

Now this isn't to go into a huge episode about addiction or anything like that, it is more around the habitual nature of the thing’s we humans do, some bad, some good. And it's a very interesting concept when you think about the nature of which we surround ourselves. So, when it comes to our financial future, nowhere near as dire as having an addiction to a drug that dangerous, but our environment can lead us to do things that may not be the best for us. We are talking with people constantly. We are reading things constantly. We are seeing and viewing things almost subconsciously via billboards ads on social media, watching TV, the subliminal messages that drive something around. Ooh, I need that, oh, I have to have that. And we talked about this a lot on a few episodes ago around the financial behaviors that we can get trapped into. It's not bad, it's just something I wanna bring up. As we look towards the end of the year and really look to changing some of our habits, changing some of our natures. [06:10.4]

And when we talk about habits in particular, we also have to talk about emotions, because our emotions always will be pulling us from our rational thought. Remember, Plato, the Greek philosopher once said the mind is pulled by an emotional elephant and a rational pony. Our emotions tend to dictate our behaviors. Rationally, there are a whole bunch of things that we know we should be doing or should not be doing, but our emotions compel us to do something else. So rather than get outta bed in the morning and maybe go to the gym, as I've referenced before, as an example, we pull the covers over and we just sleep hit the snooze button. Everyone does it. It's okay. It's a part of opening up and saying, okay, how do I make sure that something like that doesn't filter into more important things, maybe like your financial future, your retirement planning. And when we talk about emotions, the number one question that's come up as of late and I don't know that it's necessarily a question, but more of a concern, more discussion topics, which is market downturns, volatility, variability. [07:25.0]

And obviously with the markets, recent swings, largely due to pandemic news, whether it's the Omicron or some sort of variant within COVID the questions that we've been frequently hearing from clients. And again, not necessarily stated into questions, but things like, how do we adjust our investment portfolio? What are we looking at when it comes to these unpredictable times? How do we deal with uncertain things that we're seeing pretty much in the news constantly around inflation or supply chain? And the bigger question is, is the overall market gonna always be like a, teeter-totter like a seesaw. [08:02.2]

Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options? Looking at entering or about to exit the DROP program? Go to www.pensionattention.com to find out how we can help. [08:17.5]

And so, when we talk about this, one thing I wanna mention on the show today is we as humans, we, people we fear being heavily influenced by events, beyond our control. Wouldn't you agree? We're all little quasi control freaks in our own way. We want to make sure that it fits into our box. And when it doesn't, Ooh, it's bad. Don't like that. And when it comes to our finances, as I've said before, there's really three things that we all humans keep really close to our chest, finances, politics, and religion, and I'll throw in health as well. These are private matters, but we humans, we, we tend to emphasize and develop maybe even our financial plans and our retirement outlook and focusing on things that we can control, not things that we can't control. And I think that right there is a shift in the mind and something I know I share with my clients. I talk with my colleagues that we talk about the emotional investing behaviors and the way that you skillfully and objectively and unbiasedly go through a portfolio has a lot to do with planning has a lot to do with discipline. [09:28.7]

As you've heard me say many times before, I always believe in the two Ds when it comes to investing discipline and discernment. And discernment is a tough one, especially when we're managing our own monies, because it's our money. Our rational and our emotional mind within our own body are at a war constantly. Again, remember the mind is pulled by an emotional elephant and a rational pony. Emotions went out. So, when you're looking at investing, it's really hard to keep emotions out of it. Something that we here at One Capital do for all of our clients, for all of our plans and all of the portfolios that we build is make sure we structure it with discipline, with an active management approach, with rebalancing calculated and taking that view for our clients as a fiduciary, to make sure that we are looking at the portfolio, looking at the management and the plan objectively and unbiasedly. And so, when we talk about things, we can control, one of the things that I think most important when you talk about our emotions are how habits, our behaviors, when it comes to our financial planning and our investment life is risk. [10:42.9]

One of the things we actually can't control is the level of risk we have in our savings and in our investments, that's more important than ever given the uncertainty we're experienced now. So, one of the first things that we talk about with our clients who are having some of the questions I mentioned before, and talking about a market that is as of late having these swings based on news reports of virus and things like that. So, when someone is about to retire for anyone listing like that, or maybe going into a portfolio for the first time, or looking at a balance within their IRA or their 401k, they're going into somewhat of an unknown for them. So, first and foremost, if you heard me say seeking guidance and counsel is paramount to the success of it. Don't go it alone. Yes, you can look up white papers and follow a bunch of social media hacks talking about this, that and the other but the reality is you wanna find a credentialed and experience fiduciary working for you, not you working for them and talking with you, not at you. That's important. And the first thing we'll do when we talk to a client is stress, test their portfolio. We wanna look at some of the things that we need to make sure that fits into their risk profile. [11:56.7]

I can't tell you how many times we have a client coming in saying, Brad, I'm very conservative. I'm really scared of the market. And that's all great, by the way, we'll go through that discovery and talk through what that means to them. We do a lot of discovery with regards to that, but usually high percentage chance, like at 70, 80% of the time, I'll look at their portfolio and it does not match up with their verbal description of who they are as an investor. They will describe themselves as conservative, fearful of the market, yet they're portfolio that either they put together or their advisor, they're currently working with who they don't really talk to put together and their fund list and their allocation is highly skewed towards market or equities. Therefore, carrying more risks in an undiversified manner. Happens all the time. So, when we talk about some of the things in a volatile market or in a moving market, or the variability that we might see structuring your portfolio with discipline and discernment is paramount, it's vital. It has to do with making sure we take the emotions out of our investing. [13:07.8]

And to go back to our friends and veterans from the Vietnam studies, recent, however, actually shows something different. So, when scientists analyze people who appear to have tremendous, self-control, it turns out that those individuals aren't all that different from those who are struggling to have self-control or maybe with something as serious as an addiction. Instead, “discipline” people are better at structuring their lives in a way that does not require heroic willpower and self-control. In other words, they spend less time tempting situations. So, the people with the best self-control in research study are typically the ones who need to use it, the least. Kind of wild, if you think about it, it's easier to practice self-restraint when you don't have to use it very often. So yes, perseverance, grit and willpower are all essential to success. I think we all can agree with that, but the way to actually improve these qualities is not by wishing you were a more disciplined person, but actually by creating a more disciplined environment. [14:15.2]

So, if you think about it, this counterintuitive idea makes even more sense once you understand what happens when a habit is formed in the brain. And James Clear went on to write largely about this, which is why I love this study. And he goes on to describe that a habit has been encoded in the mind, which is already ready to be whenever the relevant situation arises. When Patty O’well, this was written in the book by Atomic Habits, a therapist who's actually from Austin, Texas started smoking. She would often light up while riding horses with a friend. Eventually she quit smoking and avoided it for years. She had also stopped riding. So, decades later, she hopped on a horse again and found herself craving a cigarette for the first time in forever. The cues were still internalized, she just hadn't been exposed to them in a long time. So once a habit has been encoded, the urge to act follows whenever the environmental cues reappear. [15:13.6]

So, one thing I want to go into the end of 2021 and as we look here to the horizon of 20, 22 is let's look at our environment. What have we been doing successfully, or maybe unsuccessfully as it has to do with our financial life, with our savings, with our contributions to retirement plans? The reality is that we actually are influenced largely by the people around us and who we are talking to. That's our environment and making sure that we don't justify actions that we do simply because someone else is doing it. It's the old adage we learned as a kid, right? If they jumped off a bridge, would you do it too? Doesn't mean it's right. So, it's interesting to look at it when it comes to your planning. And that's where planning with an advisor and building that relationship with someone that's just between you and them in closed walls. It doesn't transfer out of that conference room of that meeting of that phone call or of that zoom meeting. It's private, it's private wealth management to its finest. [16:18.4]

So, a more reliable approach to cutting bad habits in general is cut the bad habits off at the source. If you can't seem to get any work done, leave your phone in another room. If you're continually feeling like maybe you're not enough, stop following social media accounts that trigger jealousy and envy. If you are wasting too much time watching television, move the TV outta the bedroom. And ultimately if you find yourself spending money and you just look every year and go, where did the money go, stop reading the reviews of the latest tech gear or following the social media account that is selling you so subliminally. It's all there for us to see, and we can change our environment and change the fact that we are telling ourselves, oh, I just don't have that much self-control. We do. We just have to change the environment so; we need to use the self-control less often. [17:10.5]

I wanna thank you for listening to Pension Attention. And our remember before acting on anything discussed today, speak with a financial advisor near you about your situation. And if you'd like our help again, you can visit us at PensionAttention.com or give us a call (805) 410-5454. We'll make sure we touch base with you to set that time, to go through your complimentary retirement track review meeting to make sure you're on track for that happy and healthy retirement. And until next week stay safe. [17:40.3]

The information in this podcast is educational and general in nature and does not take into consideration the listeners personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice.

To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a final decision. [18:03.4]

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