I am a firm believer that anyone with a little interest and a moderate helping of self-discipline can be a successful investor. But here’s a warning: no matter what your age, there are some serious obstacles between you and financial success. Young investors frequently struggle with long-term planning and lack the experience of having lived through a few market cycles. In middle age we have more expenses than at any other time – mortgages, vehicles, kids’ activities, etc. – making it hard to save, and are often so busy with jobs and family to engage in sound financial planning.
I used to think that older investors, if they’d been successful up to that point, had it made. But past success merely starts them on the right footing; cognition declines, aversion to adverse outcomes increases, skepticism decreases – we become vulnerable, to ourselves and to others.
I am very pleased to welcome David Stanley back to the blog. He is a man who has lived through all of these stages, established himself as a dividend investing authority in Canada for the last several decades and has earned the right to now call himself a successful “aging investor”. When David talks, I listen. Here’s what he has to say on the subject of how aging influences your investing skills.Matt Poyner
Canadian investors have been facing some strong headwinds this year, most of which have resulted from the unprecedented pandemic currently enveloping the world. No one can predict accurately how or when this will abate and I continue to believe that the best option for individual investors is to stay the course and not to do anything out of the ordinary in terms of portfolio changes. You, of course, can do your bit as a responsible individual by obeying what our health officials recommend.
Rather, I am going to talk about an important subject you can do something about, the effect of aging on your ability to make good investment decisions.
The risk is real
I became interested in this topic a few years ago when I was running a ShareClub in a senior’s home. I heard some horrific stories of financial elder abuse, many coming from within the family, and resulting from the senior’s insistence that they were still able to handle their own affairs coupled with their children’s lack of oversight. Now that I am into my eighties this is a subject I find myself thinking about a great deal.
Let’s start with the science, such as it is. Overall we know very little about brain deterioration over time and what we do know is not very encouraging. Here is a quote from the NYT: “Studies show that the ability to perform simple math problems, as well as handling financial matters, are typically one of the first set of skills to decline in diseases of the mind.”
What can you do to protect yourself?
What can we do to fight back against aging and what should our children do to help us? A good place to start learning about financial planning and abuse is HERE.
In the first place I would expect and hope that the vast majority of us have in place a ‘Continuing Power of Attorney for Property’ (as it is called in Ontario) that takes over when things really get desperate. Their duty is to make decisions in keeping with your values, not theirs, but at that point it is often too late in the day to undo some of what might have gone on before.
Here are some things that we can do in an ongoing manner to either delay cognitive errors or at least find them out before too much damage has occurred.
1. Monitor yourself
We are and must be the gatekeepers of our own health. Try to keep an impartial eye on your brain function. In Ontario, drivers over the age of 80 must undergo a licence renewal program every two years. Part of that program is successfully completing two exercises designed to catch cognitive impairment. Go here and take a look at these problems. That’s right, these two screening tests have proven effective in measuring the cognitive skills necessary to drive.
If you want a more in-depth test try this. But remember the huge problem with self-diagnosis: The human race has an infinite capacity to delude itself. Ask yourself if you are becoming more impatient, emotional and overconfident in your decision making.
2. Suppose you do find that your skills are eroding, what then?
Here are some things to try:
A. Get some help from within your family. Remembering that since in the fullness of time you will be obliged to let go of the financial reins, doesn’t it make sense to get others involved in the process as early as possible? Can you work with your spouse and/or your kids to pass on to them your financial plans?
B. Get some help from outside your family. There are many competent and trustworthy financial advisors who are trained to take over for you. The only problem is finding one who shares your view and who will faithfully execute your plan. A big stumbling block in this process is the lack of a mandatory fiduciary duty obligation on the part of the advisor. Yes, that is correct, a financial advisor has no fiduciary duty to place your interests above his/her own. Make sure you cover this point when you are considering hiring an advisor.
C. Find someone to monitor your financial decision making. From within or outside of your family use someone close to you to keep and eye on your accounts. Make sure they get copies of your banking and financial transactions so they can check for aberrant activity.
I know that many of you will find all of these suggestions repugnant but let me leave you with this thought. Wouldn’t it be better to employ one of these options now rather than be forced into it because you can no longer look after your finances on your own?