Julie Tyios was already a savvy investor by her mid-20s, when the Great Recession hit. “I had played the markets before, and watched my parents live off their stock portfolios,” she says. But the small-business owner wasn’t prepared for seeing half of her portfolio wiped out in 2008, an experience that was, to say the least, “very upsetting.” Since then, Tyios has avoided the stock market altogether. The fear of losing so much again overshadows the possible joy she may glean from a gain. “As much as I would love to invest, the recession did a lot of damage to the market.” And, more than that, it did a lot of damage to the psychology of today’s investors.

. . .

, a professor of marketing at 91��ɫ’s , has been looking at the effects of fraud on investment behaviour, and he’s found that fraud by one firm induces an irrational suspicion among investors that causes them to lower their investments in other, unrelated firms. In other words, fear spreads fast and can spoil otherwise safe investments in people’s minds. This negative bias even applies to very well-known and otherwise trusted institutions, like Canadian banks. “While rationally you recognize you can trust the Royal Bank, motivationally you’re not willing to take a chance,” he says. “People become irrationally suspicious.”

Financial fears can also affect more than just stock choices. At 91��ɫ, , a psychology professor in the , has been conducting an international study that looks at the emotional and psychological effects of the economic downturn. So far, she’s found that people’s personalities (their fears and anxieties) impact things like their financial health and even their ability to find a job. “We are finding that debt, employability and financial well-being are all related,” she says. “If a [person] believes they are not going to get a job in the future, their financial well-being is lower.” Feelings of financial doom are also correlated to higher rates of anxiety and depression.

These findings reinforce the view of behavioural economists that “the way people approach the economy is not rational. Emotional factors influence how we react to the economic situation and to our own finances,” Greenglass says.

Republished courtesy of YFile– 91��ɫ’s daily e-bulletin

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, associate professor of finance in the , recently published : A Guide to Making the 9 Most Important Financial Decisions of Your Life, as noted in this article by Michael Posner which appeared in .

Moshe Milevsky never intended to write another book about financial planning. But then the 42-year-old 91��ɫ finance professor in the Schulich School of Business watched in horror as his family’s net worth shrank by nearly 50 per cent in the great market crash of 2008.

It wasn’t because he was highly leveraged or had taken unnecessary risks. A cautious investor, he had stacked his portfolio with stock in some of the biggest, supposedly safest, most successful American firms – GM, AIG and Lehman Brothers, among them.

To help recoup some of his losses, the industrious Milevsky…returned to writing. Within a matter of months, he had produced Your Money Milestones: A Guide to Making the 9 Most Important Financial Decisions of Your Life (FT Press,2010). It’s his seventh book and a timely one, especially for those contemplating their annual contributions to retirement savings plans.

Written during an academic sabbatical which saw Milevsky lecturing at the University of Pennsylvania's Wharton School and in Sydney, the book incorporates some of the lessons he learned from the market meltdown. Central among these is the that the old paradigm – the stock market as a casino game in which savvy investors carefully calculate the odds of any particular wager succeeding – must be discarded.

In its place is the nuclear paradigm, so-called because no historical data would be of any value in predicting the next nuclear reactor accident. It therefore abandons all possibility of determining odds. In the new investing environment, a nuclear accident can occur at any time, without warning, making bets on stocks, even blue chips, inherently unpredictable.

So what are the milestones?

1. Education
2. Real estate
3. Debt
4. Income taxes
5. Investments
6. Saving
7. Insurance
8. Children and marriage
9. Retirement

For the , visit the Globe & Mail.

Posted by Elizabeth Monier-Williams, with files courtesy of YFile – 91��ɫ’s daily e-bulletin.

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