The difference between successful people and really successful people is that really successful people say no to almost everything.
—Warren Buffett
Introduction
The Behavioral Finance Approach to Asset Allocation Based on Mental Accounting
Leveraging the power of mental accounting for the benefit of attaining financial goals can be powerful. Our biases aren't necessarily harmful! There are two main topics in this chapter. First, we are going to discuss how a behavioral finance or a “goals-based” approach to asset allocation can be helpful in order to keep financial goals in mind when creating a portfolio. I have found the following approach, outlined in Figure 31.1, and based on investors' tendency to put money in separate mental accounts, to be of tremendous value at times. Not every investor likes or needs this approach to investing but some really like it. The second will be my firm's approach to asset allocation that leverages mental accounting but in a different way which we will explore later in the chapter.
Figure 31.1 Behavioral Finance or Goals-Based Approach to Asset Allocation
Generally, what investors should aspire to do is focus on their needs and obligations, and make sure that they have enough of their portfolio carved out in capital preservation assets to meet those needs and obligations. Next, if desired, ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month, and much more.
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.
Julian F.
Head of Cybersecurity
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.
Addison B.
Field Engineer
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.
Amir M.
Data Platform Tech Lead
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.
