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Last month a war (of sorts) was declared, pitting various risk tolerance companies against each other concerning their methodologies relating to portfolio risk assessment and analysis. The dispute appeared to be outside the realm of measuring a client’s appetite for risk. However, there is a very real and clear line of demarcation in the world of risk-tolerance assessment “advisortech” with respect to the method employed in assessing the investor’s so-called “risk tolerance,” particularly the …
CFP’s View of Financial Planning and Psychology In 2021, the CFP Board announced changes to their Principal Knowledge Topics for educational programs for those seeking or with the Certified Financial Planner (CFP) designation. This change includes a new section representing 7% of the educational component, entitled “The Psychology of Financial Planning.” For those of us at DataPoints who have been writing about financial psychology and the psychology of building wealth for quite some time, …
Financial psychology is the study and application of psychological theories, methods, and practices in the areas of personal finance and financial services. The field takes into account two areas. First, financial psychology includes how we relate to and make decisions about money. In other words, financial psychology includes what psychologists refer to as “individual differences” in money-related behaviors and decisions. Second, financial psychology covers the client-advisor relationship, that is, the application of psychology in …
If you have ever taken a quiz entitled “How to tell if your boyfriend is cheating on you” or “Answer these five questions to learn to see if you’re a good friend,” then you’ve probably taken something akin to what we call a “Cosmo test.” Your answers to just a few questions will result in a detailed analysis of your personality, along with a lengthy set of advice on improving your life (or a …
“My neighbor is driving me crazy. She always says she’s the most frugal person she knows, but she’s spending every dime on *&#$* at Target. It’s not frugal. It’s stupid.” A friend recently shared this sentiment with me, and it is an excellent example of the fact that some of us aren’t great at evaluating our own personal characteristics. Some of us lack self-awareness when it comes to specific attributes about ourselves. Frugality is …