Brains and wine both improve with age (and any oenophile will tell you the 2 together, in moderation, can be good for you). When I discuss brain improvement with age, I’m referencing a growing body of literature studying the so-called “middle-aged brain” (the 40-60s age group). True, brain processing speed slows a bit in this age group when compared with younger individuals, but problem-solving skills improve. This is good news for Baby Boomers and for financial advisors like me because many of my clients fall into this age group.
Better Decision-Making = Better Financial Decisions:
Barbara Strauch, author or “The Secret Life of the Grown-Up Brain: The Surprising Talents of the Middle-Aged Mind,” writes that the middle-aged (40s to 60s) brain can grasp the gist of arguments, recognize categories and size up situations better than younger (20s to 40s) brains. This means the middle-aged brain not only makes better financial decisions, but it better understands advice given by advisors. If my 60 year clients live to 95, a better grasp of smart decision-making now imparts 35 years of benefits in their 70s, 80s and 90s.
Too Many Choices = Brain Freeze:
Another engaging book that touches on financial decision-making is “The Art of Choosing” by Sheena Iyengar. Iyengar picks up on the theme of “excessive choice.” We’re now familiar with how the brain shuts down and freezes if there are too many choices — be it cereal and laundry detergent selections in the supermarket, or long lists of investment choices in a plan. Excessive choice is like trying to drink from a fire hose. The more one seas, reads and hears, the more confusing it becomes. Even if choices are controlled or reduced (e.g. a list of 20 mutual fund choices to invest in a 401k or 403b plan), the problem posed by excessive choice don’t go away.
There are several conclusions we can draw from the types of research into the brain and financial decision-making:
If you’re in your 40s-60s, you’re at the optimal age for decision-making in all areas, including financial ones. You can make better decisions on your own, and you can better appreciate and understand choices your financial advisor discusses with you. With understanding, you become vested in your decisions, and this increases the likelihood of success.
Excessive choice leads to confusion and decision paralysis. If we take the example of a 401k plan, paralysis can be reduced through automatic enrollment, (instead of “opting in” to participate in a plan) dollar-cost averaging (automatic deductions from pay checks that go toward retirement funding) and pre-mixed diversified portfolios as a single investment choice. Target date portfolios (e.g. Retirement 2020) differ greatly, but are a good start.
***Grabbed from: http://www.forbes.com/sites/feeonlyplanner/2016/10/26/brains-and-wine-both-improve-with-age/#75a6f91d38ea