I’m always intrigued by the psychology behind investing, especially when long-held beliefs are challenged, and sometimes changed.
For example, take the common assumption that we grow wiser as we age. I believe this is true in a number of important ways, because there is no substitute for experience. But according to some of the latest research, as we grow older and wiser, we can also experience something known as “the positivity effect,” which means we tend to pay less attention to negative details and more attention to positive, big-picture outcomes.(1)
In other words, experience teaches us to not sweat the small stuff. And this I believe as well.
Clearly, there are many ways in which a sunny outlook can be advantageous at any age. But its darker side may explain why the elderly are so often targets for some of the craziest financial scams. A recent survey conducted by the not-for-profit Investor Protection Trust indicated that as many as one out of five Americans over the age of 65 have been victimized by a financial swindle.(2)
A study researcher summarized why these figures might be so high: “Increased attention to positive information is a recipe for optimistic, but not necessarily realistic, financial planning.”(3)
Beyond that, other new studies suggest that financial “loose ends” – unpaid bills, missed advisor meetings, etc. – may be strong warning signs that a loved one could be suffering from early stages of Alzheimer’s disease, especially if he or she has traditionally been good at managing the household wealth.(4)
Such behavioral changes can serve as a red flag that medical care may be needed. They can also be important warning signs that family members should consult with their advisors and take a second look at household finances, before significant damage is done. In this regard, it can be helpful to be working with a fee-only financial advisor who provides comprehensive, ongoing financial planning services working in close relationship with you and your family. He or she may be well-positioned to notice a change in the financial dynamics before you do.
So, by all means, keep your sunny position. But until we find that fountain of youth, it’s also in our best interest to continue improving our understanding of how aging, in sickness and in health, can impact our financial decisions.