Financial independence, especially early in life, is a very ambitious goal. The most reliable way to achieve this goal is through saving a lot of your income and investing it well. But this is not a get-rich-quick scheme. It’s a reliable get-rich-slowly approach that takes many years of consistent savings. It’s a marathon, not a sprint. Now I don’t know about you, but I don’t really enjoy running and I certainly don’t want to run a full marathon (i.e retire after 40 years of work). How can we turn our journey into a half-marathon instead? After all, doesn’t 20 years (or less!) working sound much better than 40?
Anchoring is a psychological term used to describe the tendency we humans have to anchor our thoughts to a reference point, even though that reference point often doesn’t have any meaning and shouldn’t be used to guide decisions. This is an important topic to understand in investing, particularly in volatile assets like stocks or real estate. It’s another area where knowledge of how our mind works helps us fight our natural but irrational instincts. It will help make you a better investor.
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