Smart Decisions about Money

Here is a re-post of one of the initial Advocacy Network blogs from Feb 2009, interesting now 4+ years later:

Feb 14, 2009

Today we take a look at the end of Reaganomics as we knew it. I remember as a young insurance professional in the early 80’s the public sentiment which was embodied in the actions of President Reagan, was for decreased taxes on the wealthy and decreased government involvement in the economy. Now, in 2009, public sentiment, which has been embodied in the speeches of President Obama, is for increased taxes on the wealthy and increased government involvement in the economy. The following are words taken directly from President Obama: “restore fairness to the tax code and provide 150 million workers with the tax relief they need and eliminate all income taxation of seniors making less than $50,000 per year.”

The Advocacy Network is committed to giving our members clear concise and non biased information that will assist our clients (members) in making smart decisions with money. We believe that practicing any political partisanship will not serve our clients. (that is not to say that we are not involved in the national and local political climate, as a responsible US citizen that is a fundamental right), yet our viewpoints are strictly towards events and how those will cause trends that all people need to be aware of in order to make smart decisions about money.

For every action there is an equal an opposite reaction, this is commonly referred to the Law of Unintended Consequences. Be prepared because there will be a mountain of unintended consequences in the decision to grow government involvement in the economy. That being said you can make these unintended consequences work for you instead of against you, it does however require that you be proactive in your decisions about money. Confidence is waning and that causes PROCRASTINATION. The most damaging impact that can be inflicted upon the market at any time is PROCRASTINATION, commonly referred to as the decision to make NO DECISION. These “no decisions” are in essence very powerful decisions which end up having huge impacts on the market place.

Let’s take a look at the present economic climate and potential impacts. The recent economic crisis has resulted in the Federal government taking substantial ownership interests in many of America’s Financial Institutions (whether you agree with this or not, it is what it is), this has led to an outcry for more governmental oversight as the public’s faith in private market solutions has been shaken. (More transparency should simplify this and hopefully allow people to regain confidence in the private market).

During the Reagan years with its lower tax rates on the wealthy (actually had the unintended consequence of choking off infrastructure investment (tax shelters) as much of the wealthy were willing to fund projects while at the 50% tax rate which while lowered was also hindered by the infamous passive income ceilings which in essence crippled the so-called tax shelter market) and its fundamental faith in the private market, saw a boom of innovative but increased risk products such as mutual funds and hedge funds. Now, many individuals see those products as too risky and are looking for safer places to put their money.

This will create a trend towards fixed rate products such as cash value life insurance and annuities. The trend towards protection products should have never decreased yet most of the buying public fell victim to a lack of clear transparency when it came to RISK. All investments are useful as long proper suitability is established. This suitability is reliant upon a client understanding the concept of RISK. No financial concept is more important to the American family then that of risk management. The financial risks of premature death, disability and living too long are the greatest risks our economy ever faces. So the movement back to protection products is not in any way a negative prospect.

Regardless of the given economic climate the great financial staples will always be tax deferral, guarantees and safety of principal. Once a foundation of protection is built then growth and accumulation can be directed and planned for. Getting back to basics of protection is a very positive thing.

The unintended consequences of the most recent governmental actions will be a strong market place for tax deferral, guarantees and safety of principal. Once again the communication and understanding of risk will be the most useful conversations individuals can have.

As to how the investment market place will be affected it is too early to tell, yet there are some factors that can give you a preview. Sectors to rely on will continue to be Technology, Financial and Energy. The recent government stimulus package included 50 billion for the energy industry, to put into renewable energy and clean energy programs. These programs will be driven by innovations in technology so it would follow that technology will enjoy and upward trend due to its causative relationship with energy. The Financial sector will be stabilized by the Insurance industry (mostly due to the previous points) but surely due to its consistent longevity and its basic economic fundamental to the American family and business owner as it pertains to risk management. Remember that the Life insurance industry has been around since just before the Civil War and has not just survived but thrived in such economic climates a World Wars, the great depression etc…, this industry has actually given the banking industry the tremendous opportunity establish itself. That very same banking industry has managed almost single-handedly to run our economy into the ground (discussion for another time).

We will continue to provide the latest and most prevalent economic information, our viewpoint will always take into account the principles of innovation, trending and clear transparency.

How Is Your Prosperity Consciousness?

Prosperity is a mindset which is commonly referred to as abundance thinking. The vast majority of financially successful people see the world differently from those who lack. The worldview of successful people is one of abundance, a state of mind that has been trained to expect, acknowledge and see prosperity and opportunities everywhere they look.

The polar opposite of this mindset is a scarcity consciousness. In this mindset people expect and acknowledge lack and limitations and they view everything in these terms. It is simply impossible to achieve financial success with this scarcity driven mindset. I always hesitate to use the word impossible as I believe impossibility is a rare happening, yet unfortunately when it comes to scarcity driven perceptions success is unattainable and therefore impossible.

Abundant driven people see opportunity in every event in their lives, they also are willing to share and give back as they know that this cycle will remain unbroken due to the belief in abundance. The world is filled with new and wonderful opportunities which will continue to multiply and be available for those who actively seek out opportunity.

Having a high prosperity quotient isn’t a naturally occurring event; it is a learned and acquired mindset. As with any learning process it requires work and practice.  Changing a scarcity driven belief system is hard work. It can be accomplished though if you will identify and admit that you suffer from a scarcity consciousness.

The foundational key to all financial victimization is a scarcity consciousness. Those with an abundantly driven consciousness do not fall victim to greed. The shortfall of greed exists only in a scarcity driven mindset. Scarcity always sees lack and limitation and therefore a desire to get as much as possible as soon as possible because there might not be anything available in the future. This can end no other way than with greed permeating one’s desires.

The prosperity consciousness is the elixir to greed. It allows one to feel comfortable within the knowledge that the world has an abundance of opportunity and material goods. There is no lack of financial gain nor is there a lack of personal achievement. The world isn’t based upon zero sum exercises which end with only one winner and the rest losers. This type of competitive belief system is scarcity driven and leads to the very lack and limitation that one believes in. It is a self-fulfilling prophecy. If you have imprinted the belief that everything is a competition which has one winner and one loser then you are on the low range of a prosperity consciousness benchmark. Creation far exceeds competition as it is extremely easy and beneficial to tap into the abundance that exists as opposed to hanging on to the scarcity that is self-generated.

Developing a prosperity consciousness is available for everyone and the first step is to identify where you are on the prosperity consciousness scale. How do you see the world around you? Do you find yourself driven by competition and greed? If this is your reality then you are somewhere in the 1-3 range on a scale of 1-10. If you are sales professional check yourself and see how you view your sales environment. Is rejection a negative force in your sales process? Do you find yourself feeling there are a lack of prospects and a lack of money to go around? Have you ever been jealous or envious of another sales leader in your office? Have you ever told yourself that the successful producers are luckier then you because they know the right people or have the right contacts. Have you ever fought over a sales lead? If any of these circumstances are your reality then you are a scarcity driven person and you need to make the necessary adjustments to become an abundantly driven person. Once you make this change you will be heading to the top of the sales charts and you will never need to look back.

Lastly, if you choose to become a dominant prosperity driven person you will be able to give back to those around you. You will be well positioned to inoculate and insulate potential victims of scams, fraud and predatory sales tactics. You will be able to serve as an advocate for those you choose to serve as opposed to one who needs to manipulate others into poor financial decisions. Do you want clients or victims?

 

Myths, Lies and Damn Lies

The advent of social media has proven to be both a blessing and a curse. The double edged sword of vast amounts of information freely flowing 24/7/365 is filled with myths, lies and damn lies.

The perpetration of scams, fraud and predatory sales manipulation is easier than ever before. Instant credibility is created through well-meaning organizations and operations. Unfortunately these entities survive on advertising dollars and therefore take a position of enabler. When an organization thrives through advertising money they have a mandate to look the other way. They have no responsibility to provide any due diligence or do even nominal research on anyone who is willing to pay dollars to advertise. Of course there could be the perception of a moral and ethical responsibility to protect the investors, consumers and public from bad advice, mis-information and flat out lies, yet the reliance is on the archaic advertising laws.

An incredible amount of the investor and consumer public live under the false impression that “everything on the internet is true; it must be because it’s on the internet.” This lie has been promulgated by the major social network operations which I won’t bother to name because you know who they are.

One such business based social network organization has myriads of groups which are started under the guise of a source of information and education. Conceptually this would be akin to Napoleon Hill’s master-mind group concept. Sadly, these groups rapidly descend to spam, scams and other manipulative sales motivations. A master mind group is formed to share insight, wisdom, and experience and through such to generate greater impact then the individual could accomplish alone.

Napoleon Hill would be rolling in his grave if he could witness what many social media groups have turned his precious concept into. The many groups are passed off as Angel Investment, Venture Capital, Investment groups, and many other business specialties well too many to list. In all of these groups the moderators (when there is a moderator) cherry pick based upon their own conflicts of interest. Rarely is there a truly educational and informational group in the mix. The most damaging issue of all is that these groups become fertile ground for scams and frauds to be perpetrated. Now, scammers and fraudsters don’t even need to invest in the promotion of their dark intentions, as they can simply slip into any social media portal and prey upon the 100’s of thousands of available potential victims.

This all can be controlled and easily avoided through the process of having a 3^rd party advocate. An advocate is only concerned with the best interest of their client. There are no conflicts of interest, internal biases or ulterior motives. The advocate exists to inoculate and insulate the client. Total inoculation and insulation is developed through education, media sourcing such as webinars, tele-conferences and virtual web based activities.

The Advocacy Network is your master-mind group formed to enhance your ability to make smart decisions about money.

Over the coming weeks I will be producing blog spots that will identify common myths, lies and dam lies in the financial market place. Believe me when I tell you there are too many to list and I could produce pieces for the next several years and not cover even a quarter of the scams, frauds and sales manipulations in the financial markets. As an investor, consumer or business you need to be aware of the potential abyss vying for your dollars on a daily basis. I look forward to serving you in your quest to make smart decisions about money.

 

Karl Schilling

321-250-1445 O

321-947-3220 C

www.theadvocacynet.com

Skype: karl.schilling5

The Magic Silver Bullet Syndrome

Great wealth for little or no effort, free money, quick returns, overnight success, zero risk, risk free, GUARANTEED! This is the rhetoric of the magic silver bullet syndrome. The one consistent behavior trait that supersedes even cynicism and skepticism is the belief that one can get rich quick. This has long been the implied promise in all scams, frauds and predatory sales tactics.

When you grasp a very simple concept you can let go of this tragically destructive belief pattern. In fact the ability to be inoculated and insulated against scams, fraud and predatory sales tactics is built upon a foundation of behavioral change. The ability to change any behavior pattern relies on the foundational change of a belief. Many times beliefs become deeply ingrained and as such are sub-conscious triggers which we are unaware of. When these triggers are launched the results are a pre-ordained decision-making process which has been built upon the underlying beliefs about any pertinent information.

The simple truth is if you believe the sky is black then you will make all your decisions based upon this information, regardless of the fact that the sky is blue. You ultimately see what you believe and therefore the sky is black and no amount of evidence will shake this ingrained belief.  The old adage goes I’ll believe it when I see it, but the truth is I’ll see it when I believe it. Now, of course this is a very extreme example but it highlights how the sub-conscious process works.

Beliefs about money are just as extreme, every individual has developed certain beliefs about money and all their financial decisions are made based upon their beliefs. If you have been ordained to believe that “money is the root of all evil” and to be wealthy would be destructive then you are repelling money on a daily basis and all you decisions are made with this simple belief driving your sub-conscious mechanisms.

With this awareness you can now understand the common urge to find quick money and find shortcuts to success. On a conscious basis the vast majority of individuals want to believe that there is a magic silver bullet that will take care of all your needs and get you out of any difficulties. It is simply a natural mindset to feel comfortable with the chance to win the lottery and have all the problems melt away. Of course the statistical probability of winning the lottery is just a tad above zero, but the chance is the addiction. We are addicted to chance. We want to believe and we want to win with no sacrifice, no risk and want a guarantee that if we fail we came be made whole immediately.

The reality is there is no winning without work, there is no success without sacrifice and there are no guarantees in life. One of the greatest tools in a scam artist’s tool bag is the impression that there are guarantees and there are risk free opportunities to become immensely rich and have everything you ever dreamed of. This fantasy is portrayed time and again in every commercial venture you are exposed to. It is played out emotionally in scams, fraud and predatory sales tactics though.  

So what is the simple answer to this tragically destructive belief? Here it is:

There is no such thing as a magic silver bullet!

The magic silver bullet in any deal, opportunity, marketing proposals etc… doesn’t exist.

Debating interplanetary aliens, Big Foot, the Loch Ness Monster and the many other real or unreal is good for scientific and intellectual debate none of these beliefs directly endanger your financial future. (Unless of course the scam or fraud is driven around a space trip or a big foot excursion).

The existence of a magic silver bullet keeps scams and fraud alive and well. When you give up this one belief and accept that success is possible through a structured work ethic, great financial results can be had through the use of solid due diligence, intelligent use of time, capital, and rate of return you can eradicate the magic silver bullet myth. That financial success can be had through the oversight of risk profiles and how risk relates to return and how growth expands when risk, return and chance are properly executed. When you remove the magic silver bullet you can think logically and rationally. You can attach your emotional connections to the elements of your life that require strong emotional support. Money is simply a concept it is not a living breathing organism and it does not have any emotional value. Unfortunately most people have attached an emotional value to money and it is this emotionally driven impact that gets in the way of making smart decisions about money. Money can be an ally or a great misery. The choice is up to the individual.

Repeat after me: “There is no magic silver bullet”

 

Karl Schilling

The Advocacy Network

321-250-1445 O

321-947-3220 C

Skype: karl.schilling5

www.smartdecisionsaboutmoney.wordpress.com

 

Power of Advocacy

One that supports or promotes the interests of another is how Merriam-Webster defines the word advocate. In comparison an Advisor or Adviser is defined as an expert who gives advice. That definition should add that usually the advice from an advisor has a price attached to it.

Can you fully trust an advisor, agent, representative, consultant or any of the other many designations worn by sales people? The sales professional is a very important fabric of the capitalistic free market environment. Sadly, the vast majority of the sales industry is populated with more amateurs then professionals. The self-directed sales amateur is a perpetrator who preys on investors and consumers alike. This is the legal level of scams, fraud and predatory sales tactics.

How can you be assured that your best interests are the only concern within any transaction? Great question and the answer is having an advocate who can keep all the others honest. An advocate is a watchdog who shields your best interests in all investment and consumer based decisions.

Identifying the internal bias and conflicts of interests is not a simple process. The most prevalent obstacle to making smart decisions about money is the lack of transparency provided throughout a sales process. It is almost as if major entities go out of their way to ensure a lack of disclosure and clear transparency. This is a major mistake as it defines and creates a lose/lose scenario.

A smart decision about money comes from a consistent process which is driven by due diligence. At the Advocacy Network we define due diligence as full disclosure, complete compliance and clear transparency. Any quality financial product, investment vehicle or offer should easily pass due diligence.

So, what exactly is the problem? The major problem is that people do not have the time or the desire to complete a proper due diligence process. We are creatures of habit and we also want to trust people. The desire to trust others is simply human nature. This becomes an issue when we become lazy and allow others to use persuasive techniques to get us to alter or short-circuit a consistent decision making process.

When you have a decision making process you are shielding yourself from poor decisions. An Advocate becomes your coach in the development and initiation of a process to make smart decisions about money. The advocate is not commission or fee driven. The benefit of a commission or success based fee structure creates an unconscious bias which consistently enters into any negotiation or sales process. This is an on-going conflict of interest as the sales person’s best interest is a buying decision. The sales person gets nothing of value in a non-buying decision.

When there is an established need fulfilled by a competent solution then both parties win and value has been successfully exchanged.  This would be the best result of any sales process. An advocate simply assures that the client/member is always on the winning side of any financial decision. The advocate successfully inoculates and insulates the client/member from scams, fraud and predatory sales tactics. (We are not an instead of the sales professionals, we are an addition to, geared to keep the sales professionals honest)

How do you know the advocate is trustworthy? The advocate is always trustworthy because there is no ulterior motive in the advocate’s role and responsibility. When a member pays an annual membership fee for services they are fully vested with the advocacy outreach. None of the services provided by the Advocacy Network are dependent upon success fees, commissions or advertising fees. This assures the membership that their best interests are our only concern. All of our Alliance partners are fully vetted and pass the most strict standard of due diligence.

To be fully inoculated and insulated against scams, fraud and predatory sales tactics an advocate is the only answer. When you become part of the Advocacy Network you receive all the necessary tools and information to make smart decisions about money. We provide full preventative services along with timely information about investment opportunities and the best solutions within the financial products market place.

Call today to speak with us about how an advocate can fully inoculate and insulate you against scams, fraud and predatory sales tactics.

Karl Schilling

321-250-1445 O

321-947-3220 C

Skype: karl.schilling5

advocacybz@gmail.com

Beware the first name basis!

One of the exceptionally useful psychological triggers is the simple use of a person’s first name. Our first name is an incredibly powerful emotion initiator. We all enjoy being recognized and our name is a powerful acknowledgement of our identity.

The ego is massaged when you are called by your first name. The last name isn’t nearly as effect as it doesn’t trigger the same emotional impact. Remember back in HS when the teacher might have called you by your last name, it wasn’t quite symbolic of your identity within the group, but getting that call on the first name created a warm stream of good feelings didn’t it?

Sales people have long been trained to use a prospects name in order to develop a camaraderie or sense of association. Once you have passed the threshold of trust it is quite easy for someone to use persuasive triggers to get you to make a decision. Financial decision making is one of the most important processes an individual faces. Mistakes with money are common and many times these decisions are gravely impacted by a process of manipulation.

This key manipulation trick has been used for centuries by those wishing to separate you from your money. Now, let’s be clear the psychological triggers are not always used for manipulative purposes yet it is vital that you understand what the psychological triggers are so you can determine if they are being used to manipulate your decision making process. It is always what you don’t know that is of the greatest potential harm to you.

The other difficulty is that much like hypnotism your behaviors become an unconscious event and are grooved in which make it quite difficult to defend against these behaviors. You have developed a financial decision making process whether you are conscious of it or not. All that needs to be done to manipulate this decision making process is for the other person to identify your process. A few key questions at the right time can easily identify anyone’s process.

The first barrier to cross is rapport. This barrier is the initial protective shield everyone puts up. It is the easiest of the shields to pierce and it also triggers the unconscious defense mechanisms to stand down. The most common trigger to use is the person’s first name. Upon crossing this barrier there is immediate rapport and a sense of ease within a conversation. If it is being used for manipulation you will find your name attached to certain concepts the manipulator is seeking to associate with your strong emotional state triggered through the use of your name. The manipulator will bracket you name around the decision making question when the time comes to close the deal. The only one capable of short circuiting this process is you. The only protection you can create is a total knowledge of your financial decision making process and a conscious awareness of what the psychological triggers are and how and when they are used.

The Advocacy Network inoculates and insulates our members against scams, fraud and predatory sales tactics. At the base of our work is the new book “You Might Be Getting Scammed When….” You can be totally inoculated and insulated against scams, fraud and predatory sales tactics and consistently make smart decisions about money.

www.karlschilling.net

Check out Advocacy Network on radio Today!

The Traders Network

SCHEDULED GUESTS FOR TUESDAY, NOVEMBER 06, 2012

2-3pm Central

Segment 1 - Laif Meidell, President - www.financialhealth.com

Segment 2 - Karl Schilling, Founder - www.karlschilling.net

Segment 3 - Norm Winski, Editor & Publisher - www.normwinski.com

Segment 4 - Anthony Cherniawski, Chief Investment Officer - www.thepracticalinvestor.com

CLEAR CHANNEL DALLAS – KFXR/1190-AM And Streaming Live @ www.yorbamedia.com

Visit Yorba TV at: http://yorbatv.ning.com/?xg_source=msg_mes_network

The Perception of Risk

Financial Advisors and Planners require a risk profile for all of their prospective and existing clients. The impression of risk has undergone many changes due to the ever-changing economic environment.

The investment climate can no longer rely on the former principles that existed right up until 2008. Since that time the financial arenas have become unrecognizable. Investors have grown skeptical and weary of their losses. The modern portfolio theory can no longer offer the protection once relied upon.

The past was driven through a buy and hold methodology and a Ibbotson model. All one had to do was hold and simply make adjustments to their portfolio based upon the long standing principles of diversification and rebalancing. Nice in theory but the game has changed and with it a new normal.

A large part of this belief system is found in something called the normalcy bias. The normalcy bias, or normality bias, refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. This often results in situations where people fail to adequately prepare for a disaster, and on a larger scale, the failure of governments to include the populace in its disaster preparations. The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur. It also results in the inability of people to cope with a disaster once it occurs. People with a normalcy bias have difficulties reacting to something they have not experienced before. People also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation.
 Late 2007 we saw a financial disaster impact our former comfort zone. Most of the public responded to this by electing a President who promised he was outside the normal politics of the federal government. The public bought this due much in part to the normalcy bias. Most of the populous had never faced a frightening economic climate such as that of the past 4.5 years. The normal response is to interpret these events in the most optimistic way possible and to hold tight to the belief that everything will return to the way it once was. The everything old is new again mindset. Unfortunately, we will never return to the economic circumstances of old.

The sooner the population faces this fact the sooner and better will be the economic recovery. Much of this response can be altered by fresh viewpoint on the principle of risk. If you are not willing to make the necessary change in perception and thought process then we will face a much greater financial disaster. By taking a refreshed strategic process for investing we can successful alter the course of our history.

In the past alternative investments were part of the highest risk level possible, and now if an investor ignores alternatives in their portfolio they will be doomed to no growth and the ongoing liquidation of their asset base.

 

www.karlschilling.net

Don't Pull That Trigger!

Don’t Pull That Trigger!

Now that you have a full overview on behavior traits that construct the psychological triggers, you can insulate and inoculate yourself against scams, fraud and predatory sales tactics.

We become victims due to a lack of understanding of our consistent behavior trends in making financial decisions. The thought process that is grooved in can easily become a rut which exposes individuals to becoming victimized. The cons, scammers and fraudsters are masters at manipulating the psychological triggers of their marks. If you don’t have knowledge of your own triggers you have no chance of avoiding victimization.

What does the process look like? It starts with desire; of course we all have the basic desire to accumulate wealth. Desire simply puts an investor in a position of constant interest; this is how one gets identified as a mark. If you are actively soliciting perpetrators they will find you. Desire is a scarlet letter that allows the world of scammers and fraudsters to identify you. Control your desire and you can insulate yourself from the perpetrators. Much like the storyline for Vampires, the conman has to be invited in.

Once in the conman now has access to manipulate you into the role of a victim. When you become interested in the scam you have stepped in with both feet and now the game begins. All of us are susceptible to the fear of loss. For most situations the fear of loss is a healthy behavior trait, unfortunately for the victim the fear of loss is directly tied to the greed trigger which is aptly initiated by the scammer.

A normal fear of loss would to consider the risks involved with the amount of capital you are seeking to invest. For example if you are looking at an opportunity that requires $100K investment then your healthy fear of loss would be that capital investment of $100K. This is the normal effect of a reasonable and healthy fear of loss. The scammer and fraudsters though are expert at twisting the fear of loss towards the future gain they are tempting you with.

An example would be this same offer which you are considering investing the $100K into. The conman triggers your greed by manipulating your focus on the future gain to be enjoyed. Let’s say the scammer tells you that the gain will be $500K on your $100K investment; this is just one aspect of the gain, the scammer takes it a step further and puts a timeline on the gain; say in 6 months your $100K will turn into $500K and there will be the usual levels of guarantees and other risk mitigation factors which will make the offer appear to be almost a sure thing. At this point your healthy fear of loss becomes focused on losing $500K not $100K. You have now been successfully manipulated into a greed based focus. This is the point of no return; once your greed trigger has been initiated it is a nuclear event.

The scammers and fraudsters seek to initiate your greed trigger and tie it to an unhealthy fear of loss. This is how victims are created and the process is the same in every situation. All scams and frauds are perpetrated through the use of 3 common psychological triggers and all scams and frauds can be avoided by understanding what these triggers are and thereby fully inoculating and insulating oneself from the initiation of these triggers.

Dangers of Framing

We discussed the flaws in mental accounting and how it negatively impacts our financial decision-making process. A key fundamental flaw in mental accounting is the effect of framing.

Framing is how we tend to view our mental accounting decisions. For example say you go to the big box store and look at the newest in computer tablets and you find a tablet you like for $500 but remember that the discount store around the corner is selling the same tablet for $400. It is an easy decision to buy at the discount store and save $100. The next day you go shopping for a new bed, and you find the one you want for $3000, but the store around the corner is selling the same bedding for $2900 saving you $100. Yet this time you purchase the $3000 bedding. Why did you make this decision? It is due to framing, in each case you saved the same $100, yet your framing of the matter was based upon the rate of discount. The 20% discount was far greater in your mind then the approx. 3.0%discount for the bedding. The reality is in both cases you would have saved the same amount of money $100 but chose to ignore the $100 savings in the second circumstance.

The danger of framing is what your benchmarks are and if these reference points are consistently meaningful. If the reference point becomes tied to a discount you will consistently make poor decisions about money.

Investment psychology becomes even more important as these investment decisions have numerous variables that can be mismanaged through poor mental accounting. These mistakes with money are constantly made by the majority of investors.

Your financial decision-making process is the foundation to any investment success. In my private practice I had used an Insurance company who created a marketing campaign in which they would provide Susan B Anthony Silver Dollars for us to hand out on initial prospect interviews. The slogan was “Even the US Government makes mistakes with money.” (the Susan B Anthony was minted the same size as the quarter, and many people purchased $3 Cokes at the soda machines) Most prospects found this humorous until they were exposed to the reality of how their financial decision-making process was consistently causing them painful mistakes with money.

Your focus point is once again in your money journal. Reflect back on what your focus has been with regards to sales. What is the last item you bought on sale and what was the deciding factor. Identity these for small and large ticket items and see if the mental accounting bias of your framing has caused you a loss of money. Once you identify what are important reference points for you, an understanding of the framing process will be easy to identify.  This self-understanding of your specific financial decision-making process will be the first building block that needs to be in place before you can successfully insulate and inoculate you from scams, fraud and predatory sales tactics.

Anchoring and Decision Making

The cognitive bias that describes our common tendency to place too much emphasis on one trait or piece of information when making a decision is called anchoring. This occurs during the normal decision making process when we rely too heavily on a specific piece of information which governs our thought process.

Once the anchor is stamped in our mind there is a bias set towards adjusting all information to reflect the anchored information. This cognitive bias is often developed at a young age when it is reinforced through our learning process.

Anchoring has a strong impact on our beliefs about money. The financial decision making process an individual moves through is reflective of their perception of money. For example, a person looks at investing in a company they may focus excessively on a certain element of fundamental analysis and use those criteria as a basis for evaluating the value of the investment, rather than considering all the proper elements of complete due diligence. The bias will cause the investor to view all future information in a manner that reinforces their decision.

These decision traps commonly lead to investors staying too long with an investment as well as developing a very large blind spot with regards to the initial investment decision.

Understanding the psychology of your decision making process will allow you to eliminate pre-conditioned bias’ which reduce your probability of making successful financial decisions. Awareness will also help you develop an objective decision making process.

Scam and fraud victims are manipulated through the knowledge and experience their perpetrators have in the field of psychology. In order to insulate and inoculate yourself fully you must understand the psychology behind your financial decision making process. You don’t stand a chance if you haven’t gained full awareness of your anchors. Believe me when I tell you that the professional scammers and fraudsters will find your anchors very quickly and devise a strategy to use to their best interests.

Your focus points for this concept are simple; return to your journal and review your last 5 investment decisions. Take the time to reflect on the answers to several questions:

1.      What is the most important aspect of an investment for me?

2.      What is my due diligence process?

3.      What must an investment not have that makes me decide to say no?

4.      What must an investment have for me to say yes?

5.      Why do I want to invest?

The BIG SCAM!

"Business as usual" Of course Pres Obama ran on a platform that was going to put an end to this philosophy. I remember the platform of full disclosure, clear transparency and other rhetoris. Now we see that the Obama adminstation not only mislead the America voter, they intended to become the MOST corrupt administration we have ever had in office. The buying of votes for the totally dysfunctional Heath care" or Health Insurance" reform bill proves that this is well beyond business as usual. Now there are states that have been finanically protected buy the Federal government and states that will need to pay the bills for the favored states. Let's put aside that this obviously cuts across party lines so in essence it is a form of political blackmail, what really happens here is that this administrtaion has begun a count-down to re-igniting a civil war! How many states are going to sit back and pay medicare, and health bills for other states who cut sweetheart deals to vote for a dysfunctional act to begin with? Forget about battles in court over constitutionality, get ready for a tea-party unlike anything seen before. WIll you really sit back and fork over hard earned dollars so States that were bribed for votes can stay fiscally sound. This not only stinks it is rotten to the core. And you thought that Red vs Blue was the next danger?
Talk about hypocrisy, let's look at the compensation Czar. This week, GM, Fanny Mae and Freddy Mac all had their CEO's pay approved. The lowest in this group was $6 million dollars. Coincindentally all these companies are Government controlled, the same Government who has ripped private enterprise and the so-called abusive salaries of those in management. Of course the excuse was these companies failed and still got big salaries, forgive me but it seems that GM, and the Fannies failed and potentially their failures led to the so-called failure on Wall Street, they at least contributed largely to the failure. Yet it is perfectly sound for these companies CEO's to have the so-called abusive salaries. This is not the only hypocrisy coming out of Washington. The FAA's recent confernce spending abuse proves that they are differnet from AIG having the sales and marketing conferences. More retoric and spin, we certainly deserve better than this.
Wake up and realize that BOTH parties have just made a huge money grab from you the American taxpayer by using several smoke-screens. Health care and Cap and trade are both red herrings. The health Bill is the first pay now and get benefits much later piece of legislature ever proposed and passed. You will never see an ounce of benefit from this legislature, nor was there ever any intention of you getting any benefit. This is simply a way of getting you pay for the decades of excess that has finally come due. The Federal government must make you believe that you are paying for a major benefit and the fact that this benefit doesn't begin for 6yrs or more is simply a small inconvenience. Imagine buying a house, car or any other useful commodity and making 6 yrs of payments before you can move in, drive away or use the product? Would you do this? Well both parties have just pulled the woll over your eyes and they have made you believe that this wasn't done bi-partisanly! It is a bi-partisian decision. In fact it is the very type of decision that should make you fired up come election time, this entire Congress and Senate need to be shown the door! We need leaders who welcome, TERM LIMITS, TORT REFORM and a strong ANTI-CORRUPTION act. From here on any politician caught taking bribes both public and private should be shown the insides of a Federal prison for a Long-Long time. Lets clean up the political system, and stop relying on the lies that are constantly perpetrated by smoot talk and no action. Let the Obama administration be the best thing that ever happened as it can be the bell ringer that opened everyone's eyes to the LIES, CHEATS and THIEFS that consistently gain the Americans vote. Just say NO to all incumbents and send fresh blood to our leadership.

Mandatory coverages

The Administration is pushing mandatory coverages at all levels. In the recent Federal Regualtions legislation for Financial institutions the Adminsitration is seeking mandatory IRA contributions. WHile this appears to be a positive, in reality it causes two major concerns, first it chips away at personal freedoms. US workers already make mandatory retirement contributions with no access to investment choices, that of course is called SOCIAL SECURITY. As it is US employees now contribute 7.5% of income to a broken program that will not pay out to the largest % of contributors. The ceiling on income has risen consistently over the last decade and now dips into the top 5% of income earners, remember the ceiling for this program used to be $35K in annual income, it is now moving rapidly toward $100K. Of course this is totally out of control and now Pres Obama suggests that workers should also have to contribute more of their income to a MANDATORY IRA! this does nothing to help the economy of course as people will have less money in their take home pay, but of course the government will be creating another slush fund to offset SOCIAL SECURITY. The bigger issue is once again an elitist attitude that the US worker and citizen cannot control their own finances and make smart decisions about money. People can choose to contribute to an IRA and can also choose where those dollars are invested, this new mandatory program will take away BOTH choices. The Obama administration is also attempting to force the Health insurance issue. The plan is to make Health insurance mandatory either through an employer (we have already covered why this won't work) or personally. Of course once again this will cripple the economy as individuals will have less of their own money to use however they choose to. Every mandatory government program chips away at personal liberty, why is that so hard to comprehend? It also creates an economy that is controlled by the government and which decides for the people what they can and can't use their own money for. Who really wants this type of situation? Seems to me that those with any common sense and the ability to look forward would want no part of this type of Government control.

Unintended Consequences

I am constantly amazed at how so-called intelligent leaders can continually make knee-jerk reactionary decisions with little to NO consideration to the consequences. Now that the auto-scam program is displaying just how inept a government run program can be, it helps shed considerably light on the potential disasterous Government Health Care plans. There is not enough time to go point by point, but rest assured that every step in the poorly designed Health care bills will elicit incredibly bad unintended consequences.

Start with businesses and Health Insurance. Ask yourself what you would do if you were a business owner. Put yourself in the following position: presently you are the CEO of a company with 100 employees. Your company provides Health Insurance, Dental and a 401K plan. You also provide a medical expense account and the program is administered through a 125 plan. The costs to you for these benefits equal approx 37%or so of payroll. The health benefit portion represents 18% or so. The Health portion also takes up the largest amount of admin time in employee education, registration etc.. this would include the compliance issues with regards to COBRA. Because of COBRA it is very difficult to make decisions about lay-offs as an employee still has the modest parachute of COBRA. Are you with me so-far. Under the plan the Democratic leadership is so desperate to race through this CEO will be faced with the following NO-BRAINER business decision. If the company offers Health Insurance it will continue to cost them approx 18% of payroll along with time and many treachous compliance issues. Or the company can TOTALLY drop ALL Health Insurance coverage and pay an 8% payroll tax penalty. Also by doing this there is NO more COBRA issues to deal with so lay-offs become easier then ever. So you're the CEO what do you do, continue to pay 18% plus headaches or pay 8% with NO difficulties whatsoever? Save 10% of your payroll expenses by choosing the 8% penalty.

I can tell you this a vast majority of CEO's will choose the 10% savings. Why wouldn't they? So, the unintended consequence is YOU will NOT get to KEEP the PLAN you are HAPPY with! Sound familiar? The second unintended consequence is LOSS of JOBS. It will now be easier to rid your payroll of poor performers and vested high salaried employees (which can now be replaced by younger and cheaper alternatives)

For every action there is an equivalent and opposite reaction. This health plan will create numerous unintended consequences, not to mention out of control expenses, loss of qualified Physicians, less service providers, rationing of care, death of elderly and much, much more....