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|the Psychology of Money|
|No. Of Pages: 253|
|PDF Size: 2.7 MB|
|Category: eBooks & Novels|
|Author: Morgan Housel|
The Psychology of Money Summary
Morgan Housel’s book, The Psychology of Money, is about investment, personal finance, and business choices. Financial choices are often taught as a math-based area, where statistics and formulae tell us precisely what to do, according to Housel. People don’t make financial choices on spreadsheets in the real world. Personal history, your own unique vision of the world, ego, pride, marketing, and unusual incentives are all mixed together around the dinner table or in a conference room.
Housel uses examples to show how individuals think about money in unusual ways, and he teaches you how to better understand one of life’s most crucial issues.
The wiser crew begins by debating the idea of retirement. Social Security was established in the 1930s, but it wasn’t until the 1960s that people’s dreams of retiring at age 65 became a reality. By 1960, 40% of the population had worked until they were 65 years old. Approximately 20% of individuals nowadays work over the age of 65. These accounts help augment pensions and social security, making retirement a reality for more individuals, thanks to the introduction of 401ks in the late 1970s and the Roth IRA in 1998. So much so that there are now almost $36 trillion in retirement funds waiting to be spent.
Housel devotes a chapter to the importance of compounding and time. Take, for example, Warren Buffett. Buffett has an estimated net worth of $84.5 billion. It’s worth noting that he amassed $84.2 billion of his wealth after the age of 50. After the age of 60, $81.5 billion was earned. Buffet began working at the age of ten, saving and investing a considerable amount of his earnings early on, enabling them to compound. He had almost $1 million in savings by his 30s. By investing early and consistently, he was able to amass vast quantities of riches.
The lesson here is that someone who begins saving between the ages of 25 and 35 and quits will have more money than someone who begins saving in their 30s and continues until retirement. Because of the power of compounding, saving more money earlier has a significant impact.
Compounding is important, but so is the way you invest. Rather than choosing individual equities, index funds are favoured. Take the Russell 3000 Index, for example. Since 1980, it has expanded by 73 times. Surprisingly, 40% of the Russell 3000 index’s firms have failed. However, 7% of the firms in the index outperformed the market by enough to compensate for the 40% loss. This is a strong reason to invest in the index instead of picking individual stocks.Back in the 1950s, technology stocks were almost non-existent. They now account for more than a quarter of the S & P 500 index. And, in contrast to the fall in oil and gas, the percentage of technology stocks is increasing.
Housel offers three possible scenarios of investor behaviour to illustrate his point of view on recessions. When the market falls, continuing the course and not withdrawing or modifying your investing habits is crucial to long-term success.
Fear’s impact on investor psychology is discussed, as well as how the media utilises fear to intimidate investors into making illogical investing choices. It’s crucial to maintain your composure amid stressful situations.
Even though someone is affluent and lives luxuriously, they may not be wealthy. Another fantastic book is The Millionaire Next Door by Thomas J. Stanley, which depicts folks who live modestly and are affluent because they live within their means, save, and accumulate money. We can govern our time when we have riches and time becomes the currency. It allows you to put your money to work for you in ways that are beneficial to you.
Long-term investments come with the risk of experiencing some volatility. It’s crucial to have a long-term perspective while building investment portfolios.
What should I do with my savings? This is a question we get from time to time from customers. Your savings account isn’t designed to provide you with any money. Saving enough money allows you to make various judgments regarding a new job, home or car maintenance, and other things. Having a safety net in the form of savings and a reserve is essential.