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.

The Power of Intent

The man who is intent on making the most of his opportunities is too busy to bother about luck.
B. C. Forbes

The definition of intent includes such terms as aim and purpose. It is a fundamental starting point. If one set out to accomplish something and begins without intent then they are simply racing idly through their life. Accidental accomplishment isn’t a good way to develop a career or solidify a life’s work.

Napoleon Hill talked in terms of “definiteness of purpose” when he started his 17 principles of success. His starting point for all success was within this concept. Intent is just another definition for this concept.

Intent can be either negative or positive; it has no character attached to it. It is the essence of the person behind the intent that validates the characterization of the intention. The reality though is that without intent you are not committed. You have not taken any steps towards accomplishment without formulating a definitive intent.

Much of our experience is the result of our imprinting from our subconscious mind. We are subject to the behaviors which were manifested through our subconscious imprinting. Intent however is a conscious driven imprint. We have complete conscious control over the creation of our intent. The truth is that the conscious creation of intent is simply and extension of what is already being programmed through our subconscious mind.

The real power of intent is subject to the conditioning of our mind. By embracing a prosperity driven mindset we initiate the intent of abundance. Through abundance we see the world filled with opportunity and can generate accomplishment in all we choose to do. The intent is always to recognize opportunity. It is this intent that becomes the driving force behind all accomplishment. When you are part of an abundant environment your options become unlimited, your actions can become a dominant force towards manifesting goodness and well-being around all aspects of your life. Everything looks, sounds, feels, and tastes better. Life becomes a journey towards self-fulfillment.

Your intent ultimately defines who and what you are. We have all heard the old adage of how the road to hell is filled with good intentions. This misses the point of fact that intent is what you choose it to be. You have complete control over the choice of your intent, do you choose to see abundance or do you choose to see scarcity? Whichever one you choose is what you will ultimately end up with.

Risk Free is a Myth

The greatest myth ever perpetrated on a society is the concept of risk free. There is nothing that is totally free of risk. Daily living is a risk. Every event in your life contains some element of risk. When you eat a meal you take a risk that the food is cooked properly and is bacteria free. You also take on the risk that you will chew the food and successfully swallow it. You take a risk when you get on public transportation, get in your car or cross the street. It goes on and on as there are an infinite amount of examples about your life and risk.

For our purposes though we are strictly focused on financial or investment risk. How many offers do you receive daily that suggest they have a risk free opportunity for you? Some of these are not even sensible let alone reasonable. Why waste your greatest asset which is time even considering these ridiculous offers? The vast majority of scams are predicated upon the basis of being without risk. They offer incredible return for ZERO risk. Please, take a moment and consider how impossible this is. If you could get 800% return on your money in 5 days, why would the promoters need any more money? Why would they seek your capital? One investor at 800% every 5 days would be more than sufficient to provide a continuous stream of capital for ongoing trading. Why would any investor withdraw 100% of their capital when they can simply keep rolling over the gains each time and continue to make 800% with no risk?

Of course we all know the answers to these questions and yet everyday there are more victims created by the allure of risk free opportunities to double, triple, quadruple or even make 10x their investment.

All industries have created some form of the myth, the financial services industry has multiple versions of this myth all of which end up with you chasing your money.

At least degenerate gamblers find a bottom. Scam victims or marks as they are called never seem to find a bottom; they just continue to chase their money with one bad decision after another. We have all experienced a loss of money, yet the most important step is what happens next. If you become a chaser then you are doomed to continued failure and ultimate destitution. If you step back and identify what happened and how it happened you are on the road to recovery. Just as gains cannot be found overnight, losses can’t be recovered overnight.

Patience and discipline is the key to financial success. The discipline aspect includes the sensibility to review, research and complete due diligence before making a decision. The wisdom to have a third party non-biased set of eyes on any monetary or financial decisions is also priceless. A third party advocate can review your opportunities with no personal bias and also see the obstacles that most individuals will conveniently over look. The sub-conscious is an amazing power. If you ignore your intuitions you will become an easy prey those who are seeking victims.

Why is risk free impossible? There are many reasons, time however allows for us to cover only one. The concept of scarcity has long been fundamental to financial markets. If something is scarce it increases in value as the demand continues to chase a perceived scarcity. Risk is a component of scarcity. Without risk how could the value of scarcity increase? Over time the truth of risk has become a greater value is associated with the greater risk. When you are willing to take on greater risk you are entitled to greater rewards. If everyone could simply walk in risk free then the market cannot grow in value, it will become flat. For this reason the proffer of risk free doesn’t equate with the market place. If you decide to lend money to an associate who has little or no collateral then you have a greater risk that that associate will default on the loan and you will receive zero value in return. For this risk you are entitled to a greatly increased return on investment or ROI. The fact is that the other party has zero hard asset value to offer in return, and therefore the risk is measured upon the ability to return the capital you have laid out. This elementary concept is the foundation of all risk profiling. Anyone who tries to sell an exceptional return with zero risk is just a fool or a con man. Either one is equally dangerous for your financial future.

A simple investment rule that can help you avoid losses is don’t invest in fairy tales and myths. Risk free is a myth.

Karl Schilling

www.theadvocacynet.com

321-250-1445 O

321-947-3220 C

Skype: karl.schilling5

FINRA Disciplinary Update

The following update validates the need for advocacy network services. All investors and consumers need an independent non-biased watchdog as it is clearly becoming more evident that financial service providers do not have their client’s best interests in mind.

FINRA Fines Up 15% in 2012

The Financial Industry Regulatory Authority (FINRA) last year reported filing 1541 disciplinary actions, a 3.6% rise over the prior year. It also put more bite into its actions by doling out $78.2 million in fines, a roughly 15% jump from 2011. It marked the fourth consecutive year of increased disciplinary actions by the brokerage industry regulator and the second straight year of higher fine totals.

The top enforcement issues, as measured by total fines assessed, related to suitability, due diligence, research report and research analyst cases, advertising and exchange-traded funds.

The uptick in suitability cases owes mainly to the $7.5 million in fines assessed in four ETF cases, as well as cases involving complex products such as reverse convertible notes and unit investment trusts. Sutherland Asbill & Brennan said it expects this to be a priority area for FINRA due to the increasing number of complicated financial products entering the market.

Regarding ETF’s, the law firm said FINRA put the clamps down on cases dealing with leveraged and inverse ETF’s that the agency considers unsuitable for conservative investors and were sold without sufficient due diligence review.

Karl Schilling
the Advocacy Network
www.theadvocacynet.com
321-250-1445 O
321-947-3220 C
Skype: karl.schilling5

Magic Silver Bullet Syndrome Continues

We all know the definition of insanity is continuing to do the same thing over and over and expecting different results. Well in the world of the magic silver bullet syndrome we see a new definition of insanity and that is believing that there is a magic silver bullet.

Below kindly see an email I recently received, notice the pitch which is one of the great magic silver bullets (passive income for doing NOTHING). Rule #1 is there is no magic silver bullet and this rule is founded upon the reality that there is no business income without sales and marketing. Products, services, information all require purchasers and in order to find purchasers marketing, advertising and sales are required. Anyone who believes there is income to be made without any sales or marketing is unfortunately a victim waiting to happen. Just read this closely and ask a simple question “How is this promoter earning money?”

Karl,

 

My friend Brad discovered an ‘underground’ money-growing loophole that wealthy insiders have been keeping to themselves for years.

It allows anyone to effortlessly start earning an extra $1,000, $3,000, $5,000 or even $10,000 or more in passive cash flow every month...
The best part is it doesn’t require any recruiting, selling or talking to anyone.

It’s all covered in a new video presentation that finally exposes the truth about passive income no one else is willing to tell you.

BUT…

I need to WARN YOU about it before you watch it...

It contains some very controversial information that will probably piss off some “gurus” in the internet marketing and home business industry.

==> Watch the video to find out why.

 

I especially love the “wealthy insiders have been keeping to themselves for years.” Remember, in order to sell the magic silver bullet there must be a secret that you can now take advantage of. The secret is of course been kept for decades, centuries or eons and now suddenly you can get this secret for some price. Those who have made millions are now willing to share their secrets with you for a small investment. This is the typical main theme in all magic silver bullet offers.

In order to avoid this pitfall just ask yourself, if you had a system that made you thousands of dollars a day and you worked many years to accomplish this and perfect the system which continues to provide you with millions of dollars of earnings a year would you want to sell it to others for small amounts of money? Would you want to spend tens of thousands of dollars in marketing costs to reach out to all these individuals when you could simply continue to use your system to earn thousands of dollars a day? I think you know the answer.

Karl Schilling

Founder

The Advocacy Network

www.theadvocacynet.com

321-250-1445 O

321-947-3220 C

Skype: karl.schilling5

 

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

Everything Old is New Again!

The Advocacy Network is focused on inoculating and insulating investors, consumers and businesses against scams, fraud and predatory sales tactics. As an investor, consumer or business entity the most evident threat is predatory sales tactics. After all even scammers and fraudsters need to sell their propositions. Eliminating the scams and fraud is the easiest part of our work; the difficult aspect is continually identifying and eliminating the predatory sales tactics used by entire industries.

Financial services are a vital part of any individual’s personal financial health and one would expect to find safety in an industry created to protect your financial well-being. Unfortunately the industry is awash with gimmicks and predatory sales tactics. Yet you must be able to integrate such financial tools such as Life Insurance, Annuities, and Health Insurance along investment vehicles into your financial plans.

The risk protection of insurance products is the foundation upon which a strong financial lifestyle is created. The insurance agent has a crucial role in you and your family’s financial well-being.

Having spent over 20 years in the Financial Services industry as an agent, manager and sales trainer I can attest to the myriad of manipulative sales practices that are taught and perpetrated against an unsuspecting public. Many of these tactics have been around since the 1920’s and certainly there are several that have been staples since the 1980’s. Let’s review just a few of the most common marketing gimmicks used to entice you into a bad decision about money.

·         The ticking time bomb of taxation on life insurance and annuities.  This has been a very common tactic since the early 1980’s and the Reagan tax changes. Since that time Congress has continually sought ways in which to gain tax revenue from retirement based usages in these products. Life Insurance continues to have a tax-free privilege through the proper usage of loans against cash values. This has long been one of the most effective means of creating tax-free income, yet the reality in planning is that this should never be the major purpose in developing a life insurance plan. Of course if this is the only reason people purchase Life Insurance then Congress would certainly put an end to this process. As to annuities there is no better vehicle to provide an income one can never outlive. For the concern of living too long annuities create a guaranteed stream of income and of course are a vital tool in proper retirement planning. The difficulty is that the industry has made these products so complicated that many times the agents who sell them have no idea of what is going on little alone educate an unaware public. In reality the annuity is a very simple concept and can be easily explained to you the consumer. SO why has it become so extraordinarily complicated? It seems that the creation of mass confusion works to the benefit of the insurance carriers. This confusion can hide the fact that not everyone needs an annuity. That’s right annuities are not right for everyone. There are circumstances where the financial benefits and restrictions of an annuity do not fir. This is called “suitability” and the insurance industry has made it more complicated the never in this arena.

·         Seminars, freebies and other manipulations. The most common marketing tool over the past 15 yrs. or so has been the use of seminars. Now there is nothing innately wrong with an educational seminar, in fact it is a good thing. But the industry has manipulated an educational event into a predatory sales hunt and certainly a product pitch. Life Insurance planning and Annuity planning is a personal issue and needs to be individually programmed. It is never a one-size fits all remedy. So. While information in a seminar setting is useful, it is only useful in general terms and once it moves into one size fits all generalizations it becomes manipulative. Your safest move is to avoid seminars as you can get all the general information you need through totally independent sources.

·         Social Security optimization. Another oldie but goody. This used to be known as pension maximization in the 80’s-2000’s. Now with the economic crises surrounding the government programs it has focused itself on Social Security. The reason for this is less people have pensions now and therefore the biggest market place exists in Social Security. With 10,000 Baby Boomers turning 65 every day the market is abundantly plentiful with those who are Social Security eligible. Once again there is solid and useful information to be had about your Social Security; unfortunately it doesn’t need to be used as a manipulative sales tool for you to purchase more financial products. Being fully honest at this point in time how many of you actually believe the Social Security system will last long enough to actually make good on its payouts to the entire universe of baby-boomers? It would seem that delaying your social security check for a larger payout from a system that may well be bankrupt in less than a decade is not a very prudent financial decision.

·         Retirement planning. Long the holy grail of the Financial Services industry, this concept has left a long a brutal trail of predatory sales tactics and manipulations. Once again we have a very individualized personal scenario that is treated with a one-size fits all mentality. Such issues as life-style, Life-experience, Life-expectancy and legacy desires are all vital parts to a congruous retirement plan. This also has to have flexibility in its design as life is never a totally linear event. Making smart decisions about money today and tomorrow require a consistent mental and emotional approach to these factors. You have to ask yourself some very crucial questions and acknowledge what has happened in the past along with what is probable in the future. The normalcy effect will not serve you well in today’s ever-changing society. One simple concern is any existing ERISA qualified retirement savings you now have (IRA’s, 401k’s, Keogh’s SEP’s etc...) as all these plans could well be targets of the government’s debt concerns in the near future. Would you be comfortable if the government determined that these funds should be in a GRA (government retirement plan) which would simply annuitize your balances and make payments much like Social Security? It is not only a possibility it has been discussed on Capitol Hill and will continue to get more traction as the runaway debt continues to grow exponentially. Over $17 trillion dollars is presently in these types of accounts. You have serious decisions to make.

                                               Industry Marketing example for Agents (Producers)

 

The stark reality is that in marketing and sales everything old is new again, yet in today’s economic arena nothing old will ever be new again. There are many other areas of concern when it comes to predatory sales tactics and the marketing tools used to attract investors, consumers and businesses. The Advocacy Network is an organization that keeps our members educated and aware of all these manipulative behaviors. Our only concern is your best interest.

 

Karl Schilling

321-250-1445 O

321-947-3220 C

Skype: karl.schilling5

www.theadvocacynet.com

 

Victimization is all in the Behavior

Are you familiar with the concept of “the Mark”? A mark is slang for the identified victim of a scam or fraud. Most investors don’t think they can ever become a mark. Yet, the vast majority of high net worth individuals are easily identified and often targeted. The reality is stunning because this particular pool of victims is rarely recognized. The reason for this is these victims rarely report their losses. While there are many reasons for this behavior it is mostly related to the common emotions of shame and guilt.

All victims suffer shame and guilt, yet the higher the profile the greater the threat that shame and guilt is socially motivated. The social networks of High Net worth families are closed societies and life style is one of the highest priorities. They are targeted more not simply because they have the wealth, but even more importantly they will usually not publicize their losses and therefore become almost a victimless crime opportunity. Conmen love High Net worth marks.

This doesn’t mean that scams, fraud and predatory sales tactics are isolated to High Net Worth victims solely; unfortunately everyone is subject to being victimized.

One of the constant staples of victimization is your financial decision making process. This process is fully ingrained and it is behavior driven. The behaviors that determine your financial decision making process have been seared into your sub-conscious and can easily be identified and manipulated by scammers and fraudsters. In fact the reason that so many people are victimized is that they are simply unaware of the psychological triggers that make up their financial decision making process. This makes investors and consumers easy targets for predators.

Our greatest advancements such as social media and communication on demand have made scamming and defrauding investors easier than ever. In the past cons needed to work hard to identify ideal marks, today in less than an hour they could come up with dozens of potential marks. They can also easily identify all the necessary psychological triggers needed to successfully manipulate their identified marks.

If you aren’t fully aware of your financial decision making process and how the psychological triggers can be manipulated you will have a total blind spot and never see the scam coming. Everyone believes the old adage “it can’t happen to me” and unfortunately they would be very wrong. At the Advocacy Network we provide our members with the information and tools necessary to completely inoculate and insulate investors and consumers against scams, fraud and predatory sales tactics. Wouldn’t you enjoy the peace of mind of knowing that were 100% protected from scams, fraud and predatory sales tactics? It is about prevention not reaction.

www.karlschilling.net  321-574-6562 O  321-947-3220 C

 

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

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.

The Pitfall of Mental Accounting

The majority of investors have a bucket list when it comes to money. They separate money into buckets and prioritize those dollars usage. An example of this behavior is a college fund. When investor puts the dollars into the college fund they lock it up and wouldn’t consider any other usage of those dollars, even if those dollars were being eroded by inflation they would stay in the college fund bucket. This is commonly referred to as mental accounting.

Mental accounting creates a disconnect with the big picture overview for financial decision making. We are much more likely to take risk with money perceived to be “house money” as is witnessed by the casino behavior with winnings. By example, when we go to the craps table with $100 and win an additional $200, we are more likely to take a bigger risk with that $200 then we would if the money was our own to begin with. The perception is that the money isn’t really ours and we didn’t work to earn it so we can risk it with impunity.

Where this disconnect displays itself best however is with tax returns. Our tax return represents money that we worked for and earned yet we ultimately perceive it as found money and are willing to frivolously spent or risk it. It is not the same circumstance as the casino effect but it is the same result.

So how does mental accounting endanger an investor as a potential victim? The psychological trigger used by scammers is a twist in the mental accounting behavior practiced by individuals. The twist is in the offer of tremendous gains, when triggered the individual reverses the fear of loss to the gain and not their initial investment. The mental accounting fast forwards to the gain and sees it as the risk involved. When the con explains how you will earn 3 million dollars on the upside, he has triggered your mental accounting to the gain. Now the impact of investing $100K seems very reasonable and the fear of loss is focused upon $3 million. The sense of urgency is created and the initiation of personal greed has blinded the victim from the real fear of loss which should be focused on the $100K being risked. This twist of mental accounting is one of the common triggers used in scams, fraud and predatory sales tactics.

The take away here is that money is always just money. It doesn’t come in separate categories such as found, house or risk free. It is a financial means to an end and has stated value. The opportunity to increase and multiply through risk is a transactional event that needs to be fully vetted for due diligence and risk analysis. In the end though the money requires no mental accounting.

www.karlschilling,net

The Power of Confirmation Bias

A resulting impact from anchoring and overconfidence is an additional form of bias referred to as confirmation bias. This bias puts us at risk in the way we perceive information. We continually extrapolate our own beliefs unconsciously and treat information that supports what we believe or want to believe more favorably.

During the decision making process for financial decisions we will refer to information that supports our decision more favorably. We rarely give the obvious negative much consideration. This is due to confirmation bias.

Sales predators are well aware of how individual biases will impact an individual’s decision making process. Surely you have sat through many sales presentations and have not picked up on the unconscious (subliminal) messages. These messages go right to you core belief system and trigger your confirmation bias. You unconsciously are seeking information that supports your beliefs and desires. Unfortunately common sense often is over ridden in this process.

For example you may have a favorite industrial sector you has been very good to you over a period of time. Let’s say energy for example. You will be much more inclined to believe information that supports you positive experiences in this sector and disregard any contrary information. In essence you will continually discount any negative information that could well make a difference in your decision making process.

Hindsight also plays a predominant factor in a confirmation bias. This creates a tendency to re-valuate our past behavior surrounding the decision after we have full awareness of the outcome. Our judgment of a previous decision is tainted by a bias formed to accommodate the new information. In a stock investment once we know the outcome of the stock’s performance we adjust our reasoning for purchasing in the first place. When updating our rationalization in this manner prohibits us from viewing past decisions as objectively as we need to.

The focus effort required here is to once again journal your experiences as they pertain to your decision making process. In order to recognize your internal biases you must have data to review. Without this data you will continue to groove ruts in your decision making process. We become creatures of habits in our decisions. By having a record of the thought process and emotions involved in any decision you will be able to review results with clarity and full transparency. By treating all information with full objectivity you will not fall victim to confirmation bias in your decisions.

Next time we will cover the disastrous impact of procrastination.  

www.karlschilling.net

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.