Your Brain & Your Finances

We continue with part 2 of our series of discussing and debunking why we think the way we do about our finances.  Cognitive biases that shape financial decisions come from all aspects of our life, read Your Brain and Your Finances below to learn more.  There are also some tips to optimize your retirement income.

This month, Market Ethos and their witting writers reference Tom Clancy’s thriller to draw similarities to our current ecomonic situation. 

We hope you enjoy this month’s insights and find them both thought-provoking and helpful.

Enjoy the read. 

Harness Investment Management

Market Ethos Clear & Present Danger

The hardest trade to make is trimming a winner. This Market Ethos is about why we did it, what the futures curve is actually saying, and why it's important to dig into exposures to see which funds are carrying more risk than they realize... read article

Optimizing Your Retirement Income

Part 2: Your Brain & Your Finances

In the first part of this series, we explored how your beliefs about money shape your financial outcomes. Now we go one level deeper into how your brain actually makes financial decisions. Because even when we think we’re being rational with money… we often aren’t.

Your Brain Is Wired for Efficiency — Not Accuracy

Groundbreaking work by Daniel Kahneman and Amos Tversky introduced the idea that our brains rely on mental shortcuts, known as heuristics, to make decisions quickly.  These shortcuts are useful in everyday life but when it comes to money, they can lead to predictable and costly errors, known as cognitive biases. These biases operate automatically, often beneath our awareness, and they can quietly influence even the most important financial decisions.

Five Cognitive Biases That Affect Your Financial Life

1. Loss Aversion

We feel losses more strongly than gains.  This is one of the most powerful biases in finance.

1. The pain of losing $1,000 feels greater than the pleasure of gaining $1,000

2. Investors may avoid markets altogether to prevent potential losses

3. People often sell winning investments too early… and hold losing ones too long

Example: Holding onto a declining investment, hoping it will “come back,” rather than making a rational decision based on current facts.

2. Recency Bias

We overweight recent events when making decisions.

1. After a market downturn we may interpret that “Markets are too risky”

2. After a strong rally our thinking may be “Markets will keep going up”

This bias can lead to buying high and selling low, the exact opposite of long-term investing success.

3. Confirmation Bias

We look for information that supports what we already believe.  We have talked about this in prior newsletters.

If you believe investing is risky, you’ll notice negative headlines

If you believe you can’t retire, you may ignore positive progress

This creates an echo chamber that reinforces limiting beliefs and prevents objective decision-making. 

4. Anchoring Bias

We rely too heavily on the first piece of information we receive.

1. “I bought this stock at $50, so I’ll wait until it gets back to $50”

2. “My  home was worth X last year, so that must still be true”

The problem is that markets change. Circumstances Change. But our minds stay anchored to outdated reference points.

5. Status Quo Bias

We prefer to keep things the same, even when change would help us.

1. Delaying financial planning

2. Avoiding portfolio adjustments

3. Staying in outdated strategies

Doing nothing often feels safer than making a change even when inaction carries its own risks.

Why These Biases Matter

These biases don’t just influence small decisions, they shape long-term financial outcomes.

They explain why people:

1. Hold losing investments too long

2. Avoid investing after market downturns

3. Delay important financial decisions

4. Miss opportunities for growth

In many cases, it’s not a lack of knowledge that holds people back it’s how the brain processes information under uncertainty.

How to Make Better Financial Decisions

You don’t eliminate cognitive biases — but you can manage them. Here are a few practical strategies:

1. Slow Down Important Decisions

Biases thrive in quick, emotional thinking. Give yourself time and space to evaluate decisions objectively.

2. Use a Structured Plan

A clear financial plan reduces the need for reactive decision-making:

1. Defined goals

2. Investment strategy

3. Rules for rebalancing

Structure helps override emotion.

3. Seek Objective Input

An outside perspective can help identify blind spots and challenge assumptions.

4. Focus on Long-Term Evidence

Markets move in cycles. Short-term noise often leads to long-term mistakes.

Your brain is incredibly powerful but it isn’t always objective. Understanding how cognitive biases influence your financial decisions is one of the most important steps toward building long-term financial success.  Because better awareness leads to better decisions… And better decisions lead to better outcomes.

What’s coming next in Part 3.  We will explore the emotional side of money which includes how fear, stress, and confidence influence financial behaviour and decision-making

Because when it comes to the decisions that shape our lives, the quality of the information we rely on matters more than ever. Own your financial mindset

Strategy: Optimizing Retirement Income

Will my money last? It is a question that many people ask.  You have probably heard of guiding rules like the 5% rule the idea that you can withdraw about five percent of your savings each year and still fund your retirement. It’s a helpful starting point, but it’s not a plan. Real life is more nuanced than a single number.

What really matters is understanding how much income you need, where that income is coming from, and how all the pieces work together. 

I’ve talked about how CPP, OAS, and pensions provide predictable, lifetime income and that stability can significantly reduce the pressure on your investment portfolio.

Your personal savings which include your RRSP, TFSA and other investments will fill in the gaps. And this is where strategy matters.

The timing of withdrawals, which accounts you draw from first, how markets behave early in retirement, and how taxes are applied all influence how long your money lasts. This includes something called sequence-of-returns risk this is when poor market returns early on, can have an outsized impact on your long-term income.

Balancing your needs and wants with your investment savings can feel like a juggling act. That’s exactly where personalized planning makes a difference.

I help people move from guessing to clarity, setting realistic income targets, -creating tax-efficient withdrawal strategies, and using retirement calculators that reflect your life, not someone else’s spreadsheet. 

And if you’ve ever thought, ‘I hope I’ve saved enough’ you’re not alone. My goal is to move you away from rules of thumb and toward a tailored strategy that replaces hope with confidence.

I’m Karen Boudewyn with Core Wealth Solutions, guiding you to …. Own Your Financial Mindset