Even the Unbiased have Biases


CentsAbility’s tagline is “unbiased financial education”, but we wouldn’t be human if we didn’t carry some biases.  In the name of transparency, here’s what we believe:

1. Good enough beats perfection

Will you be healthier if you exercised for three hours each day and never ate chocolate cake again?  You bet.  Is every person that aims for that goal doomed for failure?  Almost certainly.  Yes, you need life insurance – but an informed guesstimate is fine.  Yes, you should do some loose form of budgeting – but tracking every penny for the rest of your life doesn’t have to be it.  Yes you should save for retirement – but it’s impossible to know exactly how much.  And yes you should invest – but doing hours of stock analysis is not necessary.

Perfection is unrealistic and usually impossible in every day life.  And yet the fear of making an imperfect choice so often leads to making no choice at all.  So when faced with “good enough” action vs paralysis, we vote for any step that moves you in the right direction.

2. Process goals beat outcome goals

Here’s an outcome goal: I will win my next tennis match.  Here’s a process goal:  I will practice tennis every second day for one hour.  See which one you have much more control over?  Breaking outcome goals into step-by-step process goals empowers and motivates.  How do you eat a whale?  One bite at a time!

3. Simplicity beats complexity

We believe:

  • Low-cost mutual or index funds beats picking individual stocks
  • For temporary needs, term insurance beats whole life insurance
  • Finding an advisor you trust beats spreading your money out among many

Simple strategies often perform as well as, or better than, complex ones. And as a bonus you’ll actually understand what’s happening with your money.

4. Wanting what you already have goes a long way to being financially successful

We humans are on a hedonic treadmill.  That’s the tendency for humans to return to their normal state of happiness even after major positive or negative events happen.  Sobering thought if you believe you’ll be happy once you get X, Y or Z.

You don’t have to love everything about your life.  And you can take steps to change things – remember process goals above? But remain grateful as you strive for the next thing, as in ”Man I wish we could own a bigger house…and my life is blessed”.

5. Human nature has its weaknesses, so set good defaults

Did you know that willpower is a finite resource?  Setting smart defaults means pre-selecting smart options for your money.  And that means you don’t have to be making willpower-draining decisions over and over, exposing you to bad choices. So automate whenever possible: Auto-save.  Auto-escalate those savings.  Join your group savings plan at work.  Can’t handle lines of credit or credit cards? Go for an installment loan instead.

When automation isn’t possible, set a personal default position.  Tax refund, bonus or inheritance?  Follow the 40/40/20 rule: 40% toward debt, 40% toward savings and spend the rest. Love to shop but spend too much?  Go shopping with cash only.  Get invited to too many home parties?  Have a personal policy of neither hosting nor attending them (…guilty as charged, and no offence).

6. Update your Net Worth every month

Okay, so this isn’t really a bias, or a belief.  But we think it’s one of the most important things you can do for your money.  And we don’t mean kind-of-guessing at what your Net Worth is each month.  It means logging in, getting hard numbers, doing some basic math and then looking for trends.  Reviewing your Net Worth each month creates a powerful feedback loop that allows you to adjust and get on the track you want.

7. Have an updated will and enough life insurance

Absolutely non-negotiable. Your loved ones deserve this.

8. Passive investing is a great choice, but it’s not for everyone

We love the low-cost passive options of index and exchange-traded funds (ETFs).  We believe that over the long run, passive investing will outperform active investing.  And that do-it-yourself passive investing is a viable option for the right investor.

However, most financial advisors sell active, not passive, investment products.  And many investors are better off using an advisor if it helps them invest their money appropriately and confidently. Especially if the advisor can help manage emotions through market cycles.

9. Building wealth takes patience and work

We’re sorry, there is just no road to easy wealth.  If you are looking for a hot stock or a way to get rich quick, CentsAbility isn’t for you. Instead, we believe in having a plan, saving regularly, making sacrifices, and committing to an investment strategy that suits you.

And step-by-step, we’re here to help you do that, biases and all.

Rich regards,


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What Bruce Springsteen Can Teach Us About Investing


For Christmas I received Bruce Springsteen’s autobiography Born to Run.  Not because I especially like Bruce Springsteen, but I’d heard it was a great read.  It is. Right now I’m learning about the early stages of his career.  It’s what you’d typically expect: poverty, partying and hard work.  He’s tasted a bit of fame at this point in the book, but mostly it’s been setback after setback.  Fortunately, we already know that in the end things work out pretty well for The Boss.

But success is loud, and failure is silent.  It’s the success stories we most often hear.  We don’t hear much about the ones that don’t work out.

Here’s another example, as told in Jordan Ellenberg’s book How Not to Be Wrong: The Power of Mathematical Thinking.  In World War 2, Mathematician Abraham Wald was asked to figure out which parts of American fighter planes should be more heavily armored.  It’s a problem because while armor is protective, it also makes planes harder to manoeuvre.  He was given statistics from the military showing that the planes coming back from Europe had more bullet holes in the fuselage, and not as many in the engine. Wald had a simple and elegant insight: the reason the planes didn’t have many holes in the engine is because the planes with holes in the engine never made it back.  The ones with holes in the fuselage did.  Success was loud, and the ‘failed’ planes – the forgotten ones that were key to the analysis – were silent.  Until Wald gave them voice.  Extra armor, it was decided, would go on the engines.

It’s this type of thinking we have to apply when we hear about successful investing strategies.  I read a persuasive article about a strategy called BTSX – “Beating the TSX”.  The BTSX strategy involves ranking the stocks in the TSX 60 from highest to lowest dividend yields and then investing equally in the top ten.  The results are intriguing as the strategy has indeed outperformed the index over the past 15 years.  I thought about the BTSX for a long while.  It’s simplicity and common sense appealed to me. I considered giving it a try, at least with part of my portfolio.

Then I remembered about the planes.  And Bruce Springsteen.

It’s only when something succeeds that we pay attention to it.  The military only kept statistics on the planes that succeeded in coming back. Bruce Springsteen is able to write a novel about his life because he is now a famous musician.  If BTSX wouldn’t have worked, there would be no article about it.

To quote Jonathan Clements from The Humble Dollar:

To be sure, there are investment heroes who beat the odds and come out on top. Berkshire Hathaway Chairman Warren Buffett, with his five-decade record of beating the market, is probably everybody’s favorite example. But in many ways, this is the power of anecdotal evidence: We remember big lottery-ticket winners, whose smiling faces make the evening news. We forget about the millions of losers, because they’re never mentioned.

I don’t know how BTSX will perform in the future.  Maybe it will end up beating the TSX index for all time!  But maybe not.  And it doesn’t matter, because investing is done best by sticking to a well-diversified asset mix that considers your goals, time frame, and risk tolerance. And for me, the BTSX strategy does not fit that bill.

So when you hear about about hot stock, a sure-fire investment strategy, or a friend who doubled her investment portfolio last year, remember to think critically.  Building wealth is not about finding the secret to beating the stock market. It’s about having a plan, saving regularly, making sacrifices, diversifying properly, respecting your risk tolerance, and committing to an asset mix that suits you.

Ugh, that sounds so boring when you put it that way!  Better go see what The Boss is up to in his book; it’s likely something more exciting.

Rich regards,


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