How much does psychology impact money and investing? Quite a bit, actually. Matt sat down with author and former finance columnist, Morgan Housel, to discuss how our experiences and thoughts affect our financial decisions. Matt and Morgan also talk about writing, risk tolerance, and his new upcoming book.

Morgan Housel, partner at Collaborative Fund and award-winning former columnist at The Motley Fool and The Wall Street Journal, sat down with Matt on our latest episode of YAFPNW. Morgan discussed his upcoming book, The Psychology of Money, as well as writing, human behavior, and the importance of reading non-finance content.

Our experiences influence our investing (and writing)

Matt kicked off our episode with a question about writing: why is it so important to the overall landscape of the financial planning profession? There’s two ways to think about writing for investors, Morgan said. Writing for other people, but more importantly, writing for yourself. Getting down your ideas, writing out your beliefs about how markets work, and putting your thoughts into words can help you understand them better. In turn, you’re better equipped to talk to your clients about them.

We’re often taught as kids that money is a math-based field with one right answer. But in reality, we should think of it as something messy and inconsistent. You have to understand your own views on money and investing because it’s different for different people. 

“Equally smart people with the same information can come to vastly different answers of what’s right for them,” said Morgan. “Because they have different goals and different incentives...they view the world through a different lens.”

That’s why it’s important to view money and investing as something like “psychology or sociology where it’s messy and it’s mushy,” Morgan said. There’s no one right answer to a specific problem.

Comfort vs results

The services we provide as financial planners has evolved; it’s no longer just about how much money we can make our clients. Now, our conversations with clients often take much more into account. Our profession is based on “the whole person” as Matt put it. With this evolution of the profession, should we be focused on producing the best results for our clients? Or simply keeping them comfortable and happy?

“I actually think those two phrases are one in the same, because we know overwhelmingly the most important variable to investing success over time is endurance,” said Morgan. 

“If you can make people comfortable with their investments and then being comfortable gives them endurance and endurance is the fuel of compounding, then comfort is this is the box you need to check in order to get people to earn their highest returns over time.”

Becoming a better advisor

One thing Morgan recommends for planners wanting to improve themselves? Consume content outside of the financial space. Don’t just limit yourself to books about the economy, or investing, or financial advice. There is so much to learn about the psychology of risk and human behavior regarding money outside of the profession. 

Military history, the history of pandemics, biographies, psychology: books and articles and podcasts on these topics can give you valuable insight into how people’s heads tick “which is the most important thing that we’re trying to do as investors,” Morgan said.

Perhaps that’s part of what inspired Morgan’s upcoming book, The Psychology of Money. His book is based on 20 stories that have to do with how people think about money, risk, and opportunity. What’s unique is that many of Morgan’s stories have nothing to do with finance.

“There’s stories in there about wars, and ice ages, about geology and biology, that I hope have a good and pertinent takeaway,” said Morgan. “Stories that...are not about what you should do with your money, but what happens in your head when you are trying to do things with money. The psychological side of money.

What You’ll Learn:

  • Why writing is important to the profession
  • Our life experiences shape our financial decisions
  • Assessing future risk
  • Keeping clients comfortable vs producing results
  • Consuming information outside of investing
  • The three sides of risk
  • Staying disciplined during high impact events
  • Compounding interest and compounding probability
  • What to expect in Morgan’s upcoming book

Show Notes:

In this episode of YAFPNW, Matt Fizell, CFP®, and Morgan Housel discuss