Speaker #0Most people think managing money is about knowing a few simple rules like save regularly, invest wisely, diversify your portfolio, and stay the course. These principles sound obvious, and in theory, they are. But the reality is very different because when it comes to money, what feels right is often wrong. The world of personal finance is full of paradoxes. Today we're going to break down the most common traps that smart people fall into when it comes to managing their money. Now let's talk about the first paradox of investing. It's the idea that if it costs more, it must be better. That logic works in a lot of areas, cars, clothes, tech. But in the world of investing, it can cost you tens of thousands over your lifetime. Let's break it down. Let's start with something we all instinctively get. A luxury car feels smoother than a cheap one. Designer clothes usually last longer than fast fashion. And a premium laptop will probably run circles around a budget model, so it makes sense to assume that the same applies to your investments. That a pressure fund, one managed by pros, backed by research, with all the bells and whistles, must be a smarter choice, right? Well, Not really, because in investing, higher costs don't just not guarantee better results. They often deliver worse ones. Let's talk about actively managed mutual funds. These are the ones where a team of professionals try to beat the market by picking winning stocks. Sounds good. But these funds typically charge high fees, 1.5%, 2%, sometimes even more per year. And you might think, okay. I'm paying for expertise that feels like a smart move but here's the uncomfortable truth most actively managed funds don't actually beat the market let's put some numbers on this imagine you invest 100,000 euros into two different funds both earn a gross return of 7% annually but one is an actively managed fund charging 1.5 percent per year the other a passive ETF charging just 0.1%. Same return before fees. But here's what happens after 20 years. The passive ETF grows your investment to about 386,000 euros. The active fund, about 297,000 euros. That's a difference of 89,000 euros just gone. Not because you picked bad stocks, not because the market underperformed just because of fees. And that doesn't even account for taxes or inflation. Let that sink in. So here's the big idea. In investing, you don't get what you pay for. You get what you don't pay for. Low cost, passive strategies win, not because they're aggressive or genius or cutting edge, but because they don't interfere. They let time and compound growth do their thing. Now, the next paradox of investing goes hand in hand with the one we've just seen. In investing, laziness wins. The less you do, the better you do. Sounds counterintuitive, right? We're told nonstop that success is about hustle, grind, and staying on top of things. But when it comes to investing, that mindset can backfire. Big time. Because in investing, the more you fiddle, the more you tend to lose. And that's why it's something called a lazy. portfolio exists. Now, don't let the name fool you. It's not about neglect. It's about simplicity, discipline, and resisting the urge to constantly do something. A lazy portfolio is made up of a few diversified, low-cost index funds. No market timing, no stock picking, no daily checking. And here's the cool part. These portfolios often outperform more active strategies that look smarter on. the surface. Let's talk about what being active in investing actually costs you. First, we have transaction costs. Every trade you make eats a bit of your returns. Next, we have management fees. Active strategies tend to come with higher ongoing fees. Whether you see them or not, you're paying for them. Finally, the big elephant in the room is taxes. Frequent trading, that's realized gains. And realized gains taxable. That's less money left to compound. So what does the lazy portfolio do? It avoids all of that. Take the classic 60-40 mix, 60% global stocks, 40% global bonds. It's not flashy. It's not optimized. It's just consistent. And consistency beats intensity. The urge to act is human. Watching your money sit still feels passive, even irresponsible. But reacting to every headline, jumping from trend to trend, trying to outsmart the market. that's not strategy that's noise being a lazy investor doesn't mean you're careless it means you built a system and you trust it and honestly it takes more strength to stay still than to constantly tinker so yeah laziness works but only when it's uh strategic intentional and backed by structure um now let's shift gears for a second you've probably relied on your gut before um Maybe to avoid a shady deal or choose between job offers. And in everyday life, that intuition can be a superpower. But in investing, your gut is your worst enemy. That's because the market doesn't follow the same rules as your emotions. It's noisy, random, irrational, especially in the short term. And when you follow your feelings, you usually end up making emotional, short-sighted. decisions. Here are three of the biggest psychological traps that trip up investors, and you might recognize yourself in a few. First, overconfidence bias. We think we're smarter than we are. We believe we can see the patterns, predict the turns, and beat the market. But the reality, most pros can't beat the market consistently, and individual investors do even worse. Next, confirmation bias. Once we believe something, say that a stock is going to rise, we start filtering everything through that lens. We notice every positive headline and ignore every red flag. That leads to holding losers too long or piling into trendy picks without real analysis. Finally, anchoring. We fixate on numbers that shouldn't matter, like what we paid for a stock. If something drops below your buy-in price, you might refuse to sell, just waiting to break even, even if the stock's outlook has totally changed. Or you might avoid buying something at an all-time high, assuming it's too expensive, even when the fundamentals say otherwise. These biases distort your view of reality. They give you a false sense of control, and they push you to act when you should be patient. So what's the fix? not ignoring your brain, but giving it structure. Set clear investing rules, automate your contributions, rebalance on a schedule, focus on goals, not headlines. The best investors don't react, they execute, they don't trust their feelings, they trust their plan. Next, when it comes to managing money, most people want one thing, safety, and that's totally normal. You want to feel secure. You want to trust whoever is helping you with your finances. So what's the most logical place to go? Your bank. You already keep your savings there. You've probably had an account with them for years. It feels official, familiar, safe. But here's the truth. No one likes to say out loud, your bank is not in business to make you wealthy. It's in business to make money off you. Banks are. companies. And like any company, their number one priority is profit. That means every product, every service, every piece of advice they give you, it's all structured to serve them, not necessarily you. Let's say you walk into your local branch and ask for some investment advice. What happens? The advisor across the desk will probably suggest a bank managed mutual fund or portfolio. It'll sound professional. diversified, maybe even personalized. But what they're not telling you is this. That fund probably comes with a management fee of 2% or more per year. And guess what? That fee doesn't go toward your returns. It goes into the bank's pocket year after year, no matter how well or poorly the fund performs. Meanwhile, there are index ETFs on the market with annual fees as low as 0.1% or 0.2%. Same stock market exposure, lower cost. But the bank rarely brings them up. Why? Because those products aren't profitable for them. And that's where the real danger lies. Most people don't have the financial background to evaluate what they're being sold, so they trust the person sitting across the desk. And to be fair, that person might not be trying to mislead you. They're just doing their job. But the system is designed around incentives, and incentives shape behavior always. That advisor's job is not to act in your best interest. It's to recommend the bank's products. Unless you understand that dynamic, you're making decisions with a serious blind spot. Let's look at what that really costs. Say you invest 100,000 euros through your bank's recommended fund with a 2% annual fee. That's 2,000 euros gone every year. Whether you earn money or not, over 20 years, those fees add up to tens of thousands of euros in lost compounding. Now compare that to a low-cost ETF charging just 0.2%. That's 1,800 euros per year you're saving, money that stays invested, working for you, growing over time. And the worst part? People accept these high fees thinking they're paying for safety. But in reality, they're paying a premium for inferior results. So what should you do if you want real financial guidance? Here are two better options. For example, you can work with a fee-only independent financial advisor. These advisors are paid directly by you, not by commissions. They're legally required to act in your best interest. But probably the best solution is to learn the basics and manage your money yourself. Seriously, it's not as hard as it sounds. With a bit of education, and a clear simple strategy like investing in low-cost index ETFs, you can build a long-term portfolio that's more efficient, cheaper, and fully under your control. You don't need to become a financial expert. You just need to understand enough to not get played. Finally, for our last paradox, we are going to tackle one question that I get asked all the time by my friends. What if I invest now and... the market crashes tomorrow. Totally fair. We've all seen scary headlines. The market's at an all-time high. It feels like you've already missed the boat. And the last thing you want to do is buy in at the top only to watch your money disappear in the next downturn. So you wait. You wait for a dip. You wait for prices to make more sense. You wait for that. perfect entry point but here's the problem that perfect moment it rarely shows up and while you're waiting time and opportunity are slipping away let's look at some data from 1957 to early 2025 the s and p 500 the main u.s stock market index hit over 1240 new all-time highs that's not a glitch that's how the market works Over the long term, economies grow and the stock market reflects all of that by moving up. So being near an all time high, that's not a red flag. It's normal. In fact, if the market wasn't hitting new highs regularly, that would be a bad sign. We've all heard the phrase buy low, sell high. It makes sense on paper. But in practice, it's way harder than it sounds, because when the market does drop, most people don't buy. They panic. They freeze. They wait for things to stabilize and miss the rebound entirely. Meanwhile, most people do invest when things feel good, when the market is rising and confidence is high. And you know what? That's still better than not investing at all. There's no perfect time, only time in the market. If you're sitting on cash, waiting for the stars to align. Here's the truth. The best time to invest might have been years ago, but the second best time? Probably today. Trying to time the market is incredibly difficult, even for professionals. So what do successful investors do? They focus on consistency. not perfection they invest regularly no matter what the market is doing this strategy is called dollar cost averaging or if you're in Europe euro cost averaging it spreads out your investments over time and removes the emotional pressure of trying to guess the perfect moment so these are the five paradoxes of investing do you have any other paradox in mind that I didn't mention Let me know in the comments below. If this episode helps shift your thinking, share it with someone who's still sitting on the sidelines waiting for that perfect moment to invest. And hey, don't forget to subscribe and turn on the notifications so you don't miss the next episode. I'm Surgical Investing, and I'll catch you next time.
