Header

  Close Menu

Main Content

Agency Main Banner Content

Welcome to MoneyWise Matters

MoneyWise Matters is a weekly blog published each Wednesday by the Office of the Indiana Secretary of State. Here we discuss money related topics including; debt reduction, budgeting, saving strategies, scam alerts, investment fraud prevention and investor insights. You don’t want to miss out on this helpful information, hit subscribe for email updates (above) so you’ll be notified when we publish a new post.

Please note that the statements made in the posts are solely the opinions of the writer and do not represent the opinion and/or position of the Indiana Securities Division. The Division assumes no responsibility for the content presented by the authors.  

7 Ways the Pandemic Affects Your Investing Decisions

7 Ways the Pandemic Affects Your Investing Decisions

 

By Kylee Hale

Wednesday, October 14, 2020

As some readers may already know, my coworker, Kelly image of girl thinkingGriese and I run this blog together. We are both active members of the North American Securities Administrators Association (NASAA). Through our membership with NASAA we work with many counterparts throughout the continent. We enjoy connecting with other folks who share a similar passion to provide resources for financial and investor education. When other agencies create great information, we like to share it with our MoneyWise Matters readers. Here is a post created by the Ontario Securities Commission's Investor Office. I believe you will find it as interesting as I did.

The COVID-19 pandemic has caused significant turbulence in global capital markets. As a result, many investors have experienced dramatic decreases in the value of their investment portfolios. How investors respond to such losses can be critical for keeping on track with their long-term investing goals. It is not always clear what the best course of action is at a time like this but there are several insights from behavioral science that can help investors think more clearly about the decisions that they are facing.

1. Loss Aversion

Individuals do not feel gains and losses equally. We psychologically experience losses twice as strongly as gains. Put simply, losing $100 hurts more than gaining $100 feels good. Even if our portfolios recover to their pre-crisis levels, the pain of the losses can make investors feel like they are worse off.

2. Risk Seeking

People are more willing to take risks to avoid losses than to make gains. After experiencing a drop in portfolio value, the desire to recoup losses can cause people to become more willing to take risks. This risk-seeking behavior may cause individuals to pursue investment opportunities that are not aligned with their long-term goals.

3. Myopia

Occurs when investors focus too much on the present and not enough on the bigger picture. This is especially common when investors are focusing on a specific investment instead of considering their entire portfolio. Receiving information about investment performance too frequently can cause myopia and lead investors to adopt strategies that are not aligned with their investment plans.

4. Availability

Information is one of the primary drivers of myopia, but not all information receives equal attention from investors. The more easily information comes to mind, the more available it is to be used in decision making. The 24-hour news cycle and social media can lead to investors overweighing certain information in their decisions. This can lead to herd behavior, market bubbles and other undesirable investing behaviors.

5. Sunk Cost Fallacy

This occurs when a person allows costs that cannot be recovered, such as time or money, to influence their decisions. When a stock price decreases, investors may purchase more of the stock at the lower price in hopes that an increase will enable them to recover money that they lost with their initial investment. This is an example of the sunk cost fallacy. The decision to invest at the lower price should not be influenced by a previous investment. If the price continues to decline, investors can end up multiplying their losses by “throwing good money after bad.”

6. Overconfidence

The overconfidence effect occurs when someone perceives their abilities to be greater than they actually are. This is a frequent problem for investors. Capital markets have historically rebounded from sudden decreases or crashes. As prices drop, many investors try to determine when the market will reach its lowest point so that they can buy more assets just before prices begin to recover. Even professional investment firms struggle to do this when faced with significant market turmoil and uncertainty. Overconfidence bias can lead many investors to believe that they can “time the market” even though only a small fraction will be lucky enough to do it.

7. Regret Aversion

When dealing with uncertain decisions, people often anticipate how much regret they will feel if they are wrong. This anticipated regret can have large effects on people’s decision making. One way that people tend to minimize regret is by doing what others are doing instead of using their own information to make the best decision for themselves.

During the COVID-19 pandemic, all seven of these aspects of human behavior can become more pronounced in our decision making as investors. Knowing about them does not eliminate them. Investors will still experience the psychological and emotional effects of loss aversion, risk seeking, myopia, availability, the sunk cost fallacy, overconfidence, and regret aversion. Understanding these biases and how they impact decision making can help investors think more clearly about the decisions they have to make about their financial futures.

This post was provided by the Ontario Securities Commission's Investor Office. GetSmarterAboutMoney.ca is an initiative of the Ontario Securities Commission's Investor Office to help people make informed financial decisions. To learn more check out www.getsmarteraboutmoney.ca.


Blog Topics: 
Investing 

Recent Posts

Recent Posts

7 Ways the Pandemic Affects Your Investing Decisions

7 Ways the Pandemic Affects Your Investing Decisions

 

By Kylee Hale

Wednesday, October 14, 2020

As some readers may already know, my coworker, Kelly image of girl thinkingGriese and I run this blog together. We are both active members of the North American Securities Administrators Association (NASAA). Through our membership with NASAA we work with many counterparts throughout the continent. We enjoy connecting with other folks who share a similar passion to provide resources for financial and investor education. When other agencies create great information, we like to share it with our MoneyWise Matters readers. Here is a post created by the Ontario Securities Commission's Investor Office. I believe you will find it as interesting as I did.

The COVID-19 pandemic has caused significant turbulence in global capital markets. As a result, many investors have experienced dramatic decreases in the value of their investment portfolios. How investors respond to such losses can be critical for keeping on track with their long-term investing goals. It is not always clear what the best course of action is at a time like this but there are several insights from behavioral science that can help investors think more clearly about the decisions that they are facing.

1. Loss Aversion

Individuals do not feel gains and losses equally. We psychologically experience losses twice as strongly as gains. Put simply, losing $100 hurts more than gaining $100 feels good. Even if our portfolios recover to their pre-crisis levels, the pain of the losses can make investors feel like they are worse off.

2. Risk Seeking

People are more willing to take risks to avoid losses than to make gains. After experiencing a drop in portfolio value, the desire to recoup losses can cause people to become more willing to take risks. This risk-seeking behavior may cause individuals to pursue investment opportunities that are not aligned with their long-term goals.

3. Myopia

Occurs when investors focus too much on the present and not enough on the bigger picture. This is especially common when investors are focusing on a specific investment instead of considering their entire portfolio. Receiving information about investment performance too frequently can cause myopia and lead investors to adopt strategies that are not aligned with their investment plans.

4. Availability

Information is one of the primary drivers of myopia, but not all information receives equal attention from investors. The more easily information comes to mind, the more available it is to be used in decision making. The 24-hour news cycle and social media can lead to investors overweighing certain information in their decisions. This can lead to herd behavior, market bubbles and other undesirable investing behaviors.

5. Sunk Cost Fallacy

This occurs when a person allows costs that cannot be recovered, such as time or money, to influence their decisions. When a stock price decreases, investors may purchase more of the stock at the lower price in hopes that an increase will enable them to recover money that they lost with their initial investment. This is an example of the sunk cost fallacy. The decision to invest at the lower price should not be influenced by a previous investment. If the price continues to decline, investors can end up multiplying their losses by “throwing good money after bad.”

6. Overconfidence

The overconfidence effect occurs when someone perceives their abilities to be greater than they actually are. This is a frequent problem for investors. Capital markets have historically rebounded from sudden decreases or crashes. As prices drop, many investors try to determine when the market will reach its lowest point so that they can buy more assets just before prices begin to recover. Even professional investment firms struggle to do this when faced with significant market turmoil and uncertainty. Overconfidence bias can lead many investors to believe that they can “time the market” even though only a small fraction will be lucky enough to do it.

7. Regret Aversion

When dealing with uncertain decisions, people often anticipate how much regret they will feel if they are wrong. This anticipated regret can have large effects on people’s decision making. One way that people tend to minimize regret is by doing what others are doing instead of using their own information to make the best decision for themselves.

During the COVID-19 pandemic, all seven of these aspects of human behavior can become more pronounced in our decision making as investors. Knowing about them does not eliminate them. Investors will still experience the psychological and emotional effects of loss aversion, risk seeking, myopia, availability, the sunk cost fallacy, overconfidence, and regret aversion. Understanding these biases and how they impact decision making can help investors think more clearly about the decisions they have to make about their financial futures.

This post was provided by the Ontario Securities Commission's Investor Office. GetSmarterAboutMoney.ca is an initiative of the Ontario Securities Commission's Investor Office to help people make informed financial decisions. To learn more check out www.getsmarteraboutmoney.ca.


Blog Topics: 
Investing 

6 Alarming Ways You Are Wasting Money

6 Alarming Ways You Are Wasting Money

 

By Kelly Griese

Wednesday, October 7, 2020

As our regular readers probably know, the MoneyWise Matters weekly blog grew out of a quarterly e-magazine we used to publish. All of our previous issue are still available here. This week, we’re bringing you one of our more popular articles from the e-magazine. 


You may consider yourself the most money-conscious person you know. But there are many money-draining habits that sneak up on us. Review these six things like unnecessary insurance, credit card interest fees, and extended warranties to help you conserve your hard-earned cash.


1) ATM Fees

Paying an ATM fee feels like you’re buying your own money. Sure, it may be more convenient to get cash out at the closest ATM rather than go to the ATM registered with your bank, but small fees can add up. Many banks offer checking accounts and debit cards that reimburse your ATM fees. More than ever, banks are competing for your business by offering more ATM locations or other ways to make their company more user friendly. Investopedia provides this list of the top ten checking accounts with no ATM fees.  


2) Insurance

Being under or over-insured can be the source of money slipping through your fingers. While it may seem like you are saving money by buying only the minimum required insurance, when you actually need that insurance you could be put in a financial crisis. Not having enough coverage for a medical, auto, or homeowner’s insurance claim could result in you being responsible for big bills that your insurance won’t cover. If you opt to save money upfront by paying less for your insurance premiums, be prepared to pay more out-of-pocket later to cover deductibles, co-pays, and other added expenses. You might want to consider putting the savings from a lower premium in an account set aside specifically for this kind of unexpected expense. 

That said, be careful not to be lured into purchasing insurance you might not need or may not be able to use. Some examples of this include pet insurance, flight insurance, rental car insurance, and even wedding insurance. Be sure to read the fine print on all these offerings. It may seem like a good idea to ensure a pet or travel plans, but the terms of the coverage don’t always work as you would imagine, and you may be stuck paying for emergency vet bills or flight change fees after all. 


3) Leaving 401(k) Money on the Table

There are a lot of different opinions on how to save and invest for retirement. But there is one thing almost all people agree on, and that is if your company offers to match your contributions to a 401(k) or 403(b), you should take advantage of it! The company contribution match represents “free money,” and you shouldn’t leave it out there unclaimed. 


4) Buying a Brand New Car

You may be tempted to get the latest model, with all the newest safety features and all the bells and whistles, but keep in mind that vehicles almost always depreciate. According to CarFax, the value of a new car can drop by more than 20 percent after the first 12 months of ownership. Vehicles typically lose another 10 percent of their value annually for four years after that. This means a new car can be worth as little as 40 percent of its original purchase price after just five years. 


5) Extended Warranties

They sound like a good idea, but extended warranties are often just a waste of money. Many products are made well enough to outlive the warranty, and most extended warranties have so much fine print that it voids almost all issues imaginable. Also, most credit card companies include extended warranties as a perk. Why pay for a service you already have? 


6) Low Credit Score

Multiple things can attribute to a lower credit score, but a lower score certainly equals higher interest rates. Credit card debt, student loan debt, and any other form of borrowed money can mark you as “high risk” to lenders. With a low credit score, you still may be able to get a loan, but you are likely to pay a lot more for it. A low credit score can affect your ability to get the apartment you desire and even a job. Many places of employment check their candidates’ credit scores before hiring. You may be throwing away money on high-interest rates and hurting your employment options if you don’t maintain a good credit score. 


It’s no secret that letting any one of these money wasters drain your wallet means you’ll have that much less for the things you really want or need. Take charge of your financial life. Pay attention to the little details and treat yourself to a more secure future. 


Blog Topics: 
BudgetingCredit

Start Saving Now, 12 Weeks Till Christmas

Start Saving Now, 12 Weeks Till Christmas

 

By Kylee Hale

Wednesday, September 30, 2020

Every year the holidays seem to creep up beginning with Halloween and a landslide of busy and craziness all the way through to the new year. Adding to the usual hustle and bustle will be the concerns of the coronavirus and taking precautions while seeing family and friends. Even with apprehension related to the virus, according to a survey by ClickZ, shoppers aren’t planning to significantly change how much they spend this holiday season compared to last year. While saving money continues to be a top priority for consumers, the spending contraction that occurred in April rebounded in May and June. One difference we may notice, is Black Friday shopping will likely shift online, like Cyber Monday, creating a mostly virtual holiday shopping season for 2020. According to the National Retail Federation’s 2019 holiday consumer trend study, consumers spent an average of $1,048 on gifts, decorations, candy and more during the Christmas season. Don’t wait until November or December to prepare for these expenses. Start a Christmas savings fund now to avoid debt and overspending this holiday season.

Ways To Save

Christmas will be here in just 12 weeks. The best way to prepare for the expenses is to save a little each week. Start by estimating how much you plan to spend by adding up all the people you plan to shop for and include décor and all other holiday items. If you’re really organized, you may track your gift giving each year and be able to refer to last year to predict your spending for this year. Don’t forget about food, parties where you contribute a bottle of wine, gifts for friends’ children and the office secret Santa exchange, as these can really bump up your total. Adding up all the possible expenses, gives you a saving goal to be best prepared for this holiday season. Keep in mind that you will need to have the funds before you actually start shopping, and depending on how soon or how late you procrastinate, you may have to increase your saving rate to be able to shop sooner. Here is a breakdown of how much you might need to save per week if your goal is to have between $200 and $1,000 over the next 12 weeks.

If You Want to Have You Need to Save
$200 $17
$300 $25
$400 $34
$500 $42
$600 $50
$700 $59
$800 $67
$900 $75
$1000 $84

Another approach to determining how much you might spend this holiday season is to form your budget by looking at what you can afford. Instead of guessing what you would like to spend on gifts, look at your living expenses and determine how much money you can put aside each week. If you can comfortably put $40 away each week to spend later, then you’ll have close to $500 in your budget for holiday spending. If you are feeling confined by the amount that you can reasonably spend this year on gift giving, remember that saving for this time of year can be done all year round. Saving a small amount every month throughout the year can make the holiday expenses feel less impactful when the holidays do come around.

Need More Cash?

If you are looking for ways to increase the amount of cash you have available for holiday spending try looking at your non-essential expenses. Skip a latte or spend an evening in so you have more funds available. Giving up a few things around this time of year can allow you to spend more on others and you can return to treating yourself after the holidays. Another idea is to clean out your closet and sell things you no longer use. Online shopping is very popular right now, and platforms like Facebook Marketplace make it easy to sell online with contactless porch pick up and web-based payment. This will also help you make room for the new gifts you’ll receive over the holiday season. Don’t forget about cashing in credit card rewards and stretching your dollar further by taking advantage of seasonal deals through the end of the year.

As you choose a method to prepare for holiday spending, it’s important to earmark the funds in a special way. If you use envelopes to keep money separate for bills and fun, adding an envelope for your Christmas funds can maintain organization. However you do it, find a way to keep your holiday savings apart from the rest of your money so you don’t accidentally spend it on something else. You can even set up a savings account with automatic deposits. This will also help you remain consistent and stay on track to reach your savings goal.

Just remember to set your holiday budget for what is financially comfortable for you. The holiday season is sure to be a little different this year, but planning can reduce stress. By creating a holiday savings goal and sticking to your spending budget you will be less likely to overspend or rack up debt. With the tips above, I hope you find yourself in a financially successful situation with a great start in the next year.


Blog Topics: 
Budgeting, Credit

ABLE Savings Accounts

ABLE Savings Accounts

 

By Kelly Griese

Wednesday, September 23, 2020

Here at Indiana MoneyWise, Kylee Hale and I have an online comic we enjoy. It's called The Awkward Yeti, and it often features the (financial) adventures of Heart and Brain. In one of their more touching comics, Heart consoles Brain by saying "It's okay not to have all the answers. Super okay." But you know what's really awesome? Knowing people who DO have the answers! This is my roundabout way of saying we have a guest post this week. In our continuing series on the subject of disabilites and finances, I reached out to our friends at the Indiana State Treasurer's office to ask if they would provide us with more information about ABLE savings accounts. Here's their post. 


There is no question that living with a disability can come with increased financial challenges. Having to pay more for expenses related to additional medical needs, adaptive equipment, and personal support services – just to name a few- results not only in an increased financial burden but can also make it difficult to save money. Additionally, if an individual is receiving benefits such as SSI or Medicaid, they are limited to how much they can have in savings.

In a recent post you were briefly introduced to ABLE accounts and what they can mean for people with disabilities. ABLE accounts are probably the most significant advancement for people with disabilities since the Americans with Disabilities Act and advance its purpose by allowing individuals to save money without losing vital public benefits. They offer the opportunity of increased financial independence and empowerment.

Eligibility

To be eligible for an ABLE account one must have the onset of disability or blindness prior to age 26 and be receiving SSI or SSDI. If they are not receiving SSI or SSDI they may still be eligible for an account if they have a doctor’s diagnosis of significant functional impairment. Either the eligible Individual can open the account on their own, or an Authorized Individual (parent, guardian or Power of Attorney) can open one on their behalf. There is only one account allowed per person and anyone can contribute to the account.

Up to $15,000 per year can be contributed (individuals who work can contribute more) and if they are receiving SSI they can save up to $100,000 total. If they are not receiving SSI they can save even more. 

In 2017 Indiana proudly launched its own ABLE plan, INvestABLE Indiana. Since its inception, INvestABLE Indiana has been providing eligible Hoosier account owners the ability to save well beyond what is typically a $2,000 resource limit for many benefits, with a current average account balance of over $6,000.

Options

The Plan offers a variety of savings and investment options, ranging from more conservative to more aggressive options. Depending on one’s risk tolerance they can diversify their investments and even have access to a fully FDIC insured checking option with a debit card. You can learn more here.

Contributions and earnings in an INvestABLE Indiana account are not subject to federal or state income tax if spent on qualified expenses, similar to a 529 college savings account. Contributions are made with post-tax dollars.

Qualified Expenses

The money in an ABLE account has rather flexible usage in that a qualified expense is anything that can be connected to living with a disability and can improve one’s health, wellness or quality of life. INvestABLE Indiana participants are using their ABLE accounts to save for things such as a down payment on a home, an accessible vehicle, educational costs, and extra therapies or services not covered by current benefits.  The expense does not have to be a medical necessity and does not have to be for the sole benefit of the beneficiary. You can learn more about the benefits and usage of an ABLE account here.

The motivation behind the ABLE Act and Indiana’s own INvestABLE savings plan is to allow people with disabilities the ability to save as much as possible without losing access to their benefits, and ultimately providing the opportunity for a better life experience.


The above post was written by Amy Corbin, who is the Executive Director at Indiana ABLE Authority. Amy encourages you to contact her if you'd like more information about ABLE accounts or want to schedule a presentation on the subject. You can reach Amy by calling 317-232-1614 or email her at ACorbin@tos.IN.gov.


Blog Topics: 
BudgetingInvesting 

News and FAQs

Top FAQs