Short-Termism

Do you find yourself planning for the short term more than the long term? Do you often get tempted by immediate rewards, or do you sacrifice them for longer term gains instead? Focusing on long-term goals can be tough to do, especially when these goals feel abstract and complicated.

Overcome behavioural biases to reach your investing goals.

Research shows that we tend to focus on things that are concrete, immediate and with values that are easy to measure – like a new car or phone – over things that are abstract, remote and tough to quantify – like having enough savings for retirement.

This applies to both benefits and costs – because setting aside money for retirement leaves you with less money to spend now, some people may place more importance on that immediate sacrifice than on the long-term benefits of saving for retirement. As a result, you could feel tempted to tell yourself that saving for retirement is something you’ll get to later.

One way to resist the natural tendency to favour the short-term is to plan ahead and make a commitment to follow through on that plan. Planning helps to make the long-term feel more concrete and real—it trains us to place sufficient weight on the long term to meet our goals. When setting goals, it’s best not to start with abstractions, like dollar amounts, but with goals more likely to resonate with us emotionally—like retiring earlier, taking more vacations, or putting the kids through college. Learn more about how to get started on a financial plan.

Once you’ve decided on a plan, there are some simple strategies you can use to act on that plan—for instance, set aside your savings in a separate savings or investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition, so that you’ll be less tempted to use these savings for short-term wants. There are a number of investment options for long-term savings. You can also investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition using taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition-sheltered plans, like RRSPs, RESPs, and TFSAs – these plans can help your money grow faster.

One thing to remember is that a relatively small investment could grow significantly over time due to compound interest. Use our Compound interest calculator to find out how much your investment could grow over time.

Read the full report

If you’re interested in how leading practitioners and regulators around the world are using behavioural insights to address issues in capital marketsCapital markets Where people buy and sell investments.+ read full definition and improve outcomes for investors and market participants, read the Investor Office Report – Behavioural Insights: Key Concepts, Applications and Regulatory Considerations (OSCOSC See Ontario Securities Commission.+ read full definition Staff Notice 11-778).

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