It's Just Money

The Bogleheads' Review, Chapter 19

Welcome to the Bogleheads' October Project, Chapter 19, "Mastering Your Investments Means Mastering Your Emotions."

Let's start with a little quiz:

1.  A bat and a ball cost $1.10 in total.  The bat costs $1.00 more than the ball.  How much does the ball cost?

2.  If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets?

3.  In a lake, there is a patch of lilypads.  Everyday, the patch doubles in size.  If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half of the lake?

We'll come back to the answers at the end, but trust me, this relates to the my review of Chapter 19 of the Bogleheads' Guide to Investing.

When it comes to investing, we are all better off to be like Mr. Spock, above.  Emotions, at times, serve us very well.  The fight or flight reaction pumps up our adrenaline and helps us either in battle, or to get the heck out of a bad situation.  However, knowing which to do when is often when our emotions get the better of us.  Things like ego and overconfidence could be big trouble.

We are all emotional beings.  This we know.  We get excited, fearful, optimistic, depressed.  These emotions have a greater impact on our decision making than most of us would like to believe.  In the end, almost all of us, in almost everything we do make one massive error that, if applied to investing, could cost you dearly.  What is this error?

We make decisions emotionally and justify them rationally.

The Bogleheads' October Project Kicks Off Today

JLP at All Financial Matters has put together a project called the Bogleheads' October Project for a bunch of us Personal Finance bloggers to participate in together.  We all thank him for his time and effort.  The idea is this.  We are reviewing the book, one chapter at a time.  We have each been assigned one chapter, and each day the next chapter's blogger will post his/her review.

I am up to bat on Wednesday, October 25, reviewing Chapter 19, "Mastering Your Investments Means Mastering Your Emotions."  This should be a lot of fun.  I'm really into understanding how behavioral economics affects our decision making.

I'm sure they will all be very interesting, well written and insightful, but I can't help but look forward to a few in particular.

Chapter 7, Jim at Blueprint is reviewing "Keep it Simple."  This couldn't be more appropriate.  Jim has a knack for making a variety of topics simple and readable.

Chapters 10 and 11, Don't Mess With Taxes is reviewing, "Taxes Part 1," and "Taxes Part 2"  Taxes is an often overlooked or undervalued part of investing.  I'm very interested in reading Kay's take.

Chapter 13, Ramit at I Will Teach You to Be Rich is reviewing "Performance Chasing and Market Timing are Hazardous to Your Wealth."  Seems appropriate.

Chapte 15, J.D. at Get Rich Slowly will review "How to Manage a Windfall Successfully."  I just love the irony.

Chapter 16, Cap at Stop Buying Crap will review, "Do You Need an Advisor?"  Cap is definitely one of the most frank, creative writers among personal finance bloggers.

Chapter 20, Dawn at Frugal for Life will review "Making Your Money Last Longer Than You do."  Making your money last is a function of managing your income/portfolio growth and your spending.  Who better to write about this than Dawn?

Chapter 21, Financial Freedumb will review, "Protect Your Assets by Being Well-Insured."  Insurance is an often overlooked area of personal finance.  I'll be interested in reading FF's review.

Book Review: Automatic Millionaire, by David Bach

Well, I didn't actually read the book.  I picked it up on CD at my local library.  Another admission, I began this a little bit biased.  I think I have seen enough of David Bach on Oprah, read enough from his Yahoo Finance columns and gotten enough of his "buy a home now or perish" mantra to know that I'm wasn't going to be a huge fan of his books.

I'm still waiting for the Automatic Millionaire Homeowner to become available on CD at my library.  I'm really curious what six hours of "you're a loser if you don't buy a home today" sounds like.

So, as for this book.  Well, as always there were some thing that I liked and didn't like.

Book Review: Your Money and Your Man, by Michelle Singletary (part 2 of 2)

If you missed it, you should read part one of this book review first.  Picking up where we left off, this will be our more positive of the two posts.

Things I liked:

In Chapter 3, she give milestones that everyone should think about depending on what stage in life you are at.  For example, under "Twenty to Twenty-Nine" she recommends that you "make a habit of paying yourself before you pay other expenses."  She also recommends that you begin to save for retirement, buy a house, begin charitable giving, and create a will.  Obviously, everyone will have different goals, but these are good general goals that everybody should at least be thinking about.

Book Review: Your Money and Your Man, by Michelle Singletary (Part 1 of 2)

This book may be a strange choice for me.  It's obviously written for women, but as someone who personally is recently engaged, and professionally advises couples about their money, I wanted to read a book about money and relationships that is written from and for the woman's perspective.

There are quite a few to choose from, including Nice Girls Don't get Rich, by Lois Frankel, and Smart Women Finish Rich, by David Bach (I wonder why David didn't write a book for men).  I was drawn to Michelle's book because she is a well known personal finance columnist, and well, the colors on the cover were pretty.  My review may run on the long side (I tend to be somewhat verbose), so this will be part one of two.