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Chapter 1: What is the main topic discussed in this episode?
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Welcome to the Australian Finance Podcast, a podcast for people who want to learn more about their personal finances and get the most from their money. This series is hosted by Kate Campbell from How To Money and Owen Rascovitch from Rask Finance.
The Australian Finance Podcast is provided for educational purposes only. The information is general in nature and does not take into account your needs, goals or objectives. What that means is the information does not apply to you specifically. So consider getting the advice of a licensed and trusted professional before acting on the information. Ted, welcome to the show.
Thanks very much, Owen. Thanks, Kate. It's our privilege to have you here. You're a former AFL superstar. You've got your own podcast. You're working at Sixpack.
You've done it all, mate. No, I wouldn't say that at all. I'm very much proud and enjoy my time that I played football, but I always knew what I wanted to move into after football, and that's investing. So I thoroughly enjoy what I do, and I started up the podcast a few years ago. It was a bit of a trial.
uh pleasingly it it seems to have got a few listeners so um yeah that's very much what i'm up to now great yeah i know kate is a fan of six park yes yeah i've been using six park myself for a couple of years now so i've been reading ted's blogs and podcasts they're watching reading listening to the podcast so that's been really good and i've i've enjoyed my journey with six park
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Chapter 2: What are the foundational concepts of behavioral economics?
We can be our own worst enemy. It doesn't matter how much we dig deep into the logical aspects of investing or money management. We need to be aware of these biases that we have because, as I said before, we can be our own worst enemy.
And they can filter into everything we do, especially in investing. And I guess if you don't realize them, it can impact your performance and your returns long term.
Right. Yeah, there's a line I love and that is, when emotions are high, logic is low. And I think, you know, at the time of recording it, what is it, mid-June, markets have had a pretty good... Yeah, everyone's pretty happy at the moment. Yeah, everyone's pretty happy.
But I think the behavioural mistakes, you know, start to kick in when people get a bit nervous, they can't sleep at night, all these other... There's a story I've told a few times recently that... If a neighbor of yours wins the lottery, the chances that you are going to go bankrupt actually significantly increase. And that's because we are influenced by the money management of people around us.
So if someone all of a sudden starts...
increasing their spending and buying all these other things that's actually going to influence our spending behavior too and so keeping up with the jones as we start taking on a bit more financial risk to try and keep up with them so this doesn't make sense it's stupidest thing ever but this has been proven yeah so um i guess that's just an example of you know when emotions are high logic is low
Yeah, I guess it's like watching everyone at work go on holidays and then you're perfectly fine before because you're going to go on one next year, but then suddenly you feel like you're the odd one out and you're missing out on all this opportunity.
So there's this belief in investing in markets that there's effectively three types of investing edges that you can have. And the first one would be an analytical advantage, so you think that people are really intelligent, therefore they would be better investors, which isn't always the case, as we know.
The second one might be an informational advantage, and that might be having access to information first or just better information more broadly. But the third one, which I believe overrules everything else, is this behavioural edge. And you and what you and the team do at Sixpack is very interesting in this respect.
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Chapter 3: How does Ted Richards define loss aversion in investing?
you get a bit of success and you get that momentum of success and you go, well, I'm actually achieving things here. You're right to feel quite proud of yourself too.
I think we spoke in our podcast last week about using those micro-investing apps to sort of learn the basics and learn portfolio construction and diversification so you can actually use their information for your own purposes and actually get as much value as you can out of it.
I do think one challenge though with all the apps is it's so easy to withdraw or sell based on something you've seen in the media or a feeling you're having.
Yeah, I totally agree. And yeah, there's great sides to technology, but at the same time, our money is just one or two clicks away. So sometimes it can be good just to delete the apps if you do feel like you're being influenced. I delete my social media apps every now and then too if I feel like I'm just starting to spend a bit too much time on them.
Yeah, having your social media, having your news apps and having your investing apps all in one place is sometimes a recipe for disaster.
I really like the idea of automating things. And I think some of the – particularly the online banks do a really good job of that, making it very simple to set up, say, BPAY transactions or direct deposits or whatever. Regular payments.
Yes. Yeah. The Barefoot Investor talks about having buckets of money. And if we were thinking about pure economics – One dollar here, we all think about every single dollar is exactly the same. But I think mental accounting is a fantastic way to think about your money. And if you can automate payments into each of those buckets, it can help, really help.
Yeah, I've heard definitely people that have the one account for going out and one account for bills. And they said that's really helped them with their budget. So instead of having to do up a budget, they've kind of just got the bank accounts and automated payments.
And the problem is you just don't want to have too much, to make it too easy for yourself as well as overcomplicating it. A few others that... I quite like, and these are very simple things that people can do, is just have a checklist. So do it when you're in a calm state, something that you can write down or you can just check the boxes off.
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