When squirreling money away investors have to take risks to realize rewards

By Dian Vujovich

Too bad investing doesn’t come with guarantees.  But even if it did, the way most of us think

It’s no secret that saving/investing for our retirements would be a whole lot simpler if we human beings were naturally long-term instead of short-term thinkers. But we’re not. And therein lies the  rub of building sizeable nest eggs the contents of which we hope to use at some long off future date that is decades —not months–away.

More than one company has used the picture of a curly tailed squirrel gathering nuts for the coming winter in hopes of getting investors to  think long-term and create a retirement plan. It’s a great visual. Too bad it’s not appropriate: While that squirrel might be squirreling away food for the up-coming months, he’s really a short-term planner. The cold winter season, after all, arrives every year and only lasts months. Retirement isn’t an annual season and for most humans  literally lasts decades. And takes decades to  financially prepare for.

I mention this only because  investors don’t always think straight–or long-term.  And when saving for retirement is the goal,  short-term  thinking does little  to insure we’ll have success building wealth for it.

Dr. Daniel Crosby recently wrote three pieces for Wealthmanagment.com, titled “The Three Pillars of Investor Behavior” about behavioral finance. One of his three pillars is safety (simplicity and surety are the other two).

But choosing investments that are safe isn’t necessarily the best way to grow dollars. Doing that requires some risk taking over time. That’s something short-term squirrels don’t do.

In a study by State Street titled “The Influential Investor”, Crosby writes that research found “the number one desire of respondents was to be more aggressive with their wealth but that the primary asset allocation of those surveyed was cash. This schizophrenic disconnect between desire and behavior shows just how deeply-seated the need for safety truly is.”

Additionally, “ an investor seeking safety in allocating to cash may not realize that his worst fears of low wealth are being met in his failed attempts to manage risk.”

So what’s an investor to do change his behavior? If saving for retirement is the goal, stop, think and most importantly set financial return goals that target your personal long-term needs. That means ones that aren’t nutty and only  focused on short-term results.

To read more articles, please visit the column archive.