Don't be a phool in 2016. A "Phool" is a term coined by Nobel Economics Prize winners George Akerlof and Robert Shiller as a person who succumbs to "phishing." That can be a number of financial deceptions. Keep yourself from becoming a phool and you can make money and build up your nest egg in your 401(k).
The recent Forbes article, "One Powerful Money-Making Move for 2016," explains that most of us believe we know what's good for us, but when it comes to money, we shoot ourselves in the foot—and wallet!
The root of phoolish behavior, Akerlof and Shiller say, is the self-conceit that you think you know more than all of the smart people who are trying to take your money every day. Can you compete with computers and sophisticated programs that take advantage of pricing glitches and make trades in milliseconds, as well as robots who move at the speed of light?
Despite our tendencies, we don't have to be phools. Here are some wise suggestions to consider:
- Adopt a Long-Term Investment Strategy. Don't jump into a stock or product based on a newspaper headline. If other people think something is hot, it could very well be overpriced. It'll eventually come down in value. Decide what you want to do with your money decades down the road for things such as college, retirement and estate planning.
- Buy and Hold. This can be less than glamorous, but you have no advantage timing any market because thousands of professionals will have much better information than you do. If you need stocks for growth, examine their risk and adjust your portfolio accordingly.
- Select Index Funds. You can't buy last year's returns, so select index funds that cover global stocks, bonds, and real estate. Check them once a year. If you get sick to your stomach when you look at the risk you're taking, make a change, only do so annually.
It doesn't take a Nobel Prize to know that when it comes to money, you may not know as much as you should. But don't panic. Plan ahead and forget the rest of it. You'll have much more peace of mind, as well as financial security.