Oral Health Group

Are You Sabotaging Your Retirement?

March 23, 2017
by Dr. Wilson Chen, BSc., DDS, CFP, FMA


Humans are emotional beings. They have survived and thrived through the centuries by trusting their gut instincts, regardless of the prevailing logic. These deep-rooted behaviours have helped in many instances but have also become a burden in important situations. The field of behavioural finance was developed in the early 1970’s to try and explain why investors were continually making illogical choices. Through the pioneering work of Daniel Kahneman and Amos Tversky, we have a better understanding of what makes an investor tick. When it comes to investing for the long term, humans have developed mental biases that are irrational and, in many cases, detrimental. Let’s highlight four common mental biases that keep investors (dentists or otherwise) from reaching their retirement goals.


Recency Bias
“Buy low, sell high”. It sounds so easy, doesn’t it. But it is so hard to do.

In our minds, we tend to weigh the most recent events as the most important. Hence the saying – What have you done for me lately? When you apply recency bias through an investment lens, investors will always look to sectors that are performing well and believe that this trend will continue. For those who remember the dot com meltdown in 2000, it was a classic example of recency bias. Technology stocks (especially those that were internet related), moved higher and higher in the late 1990’s. Many of these companies did not have any earnings nor any great ideas. Investors became more anxious as each day passed, as they felt that this rally would keep running and they would be left behind.

In many instances, investors sold out of their diversified holdings and dove into tech stocks – in effect, selling low and buying high – or the complete opposite of what we all strive for. When the bubble burst in March of 2000, many found that they had jumped in near the peak and participated only in the fall.

Even with history as a guide, many still can’t help dumping out of favour holdings to chase after recent winners. More often than not, it doesn’t end well.


  • Realize that different assets and sectors will move up and down at different times. Having a well balanced portfolio will allow you to participate regardless of the investment climate. Yes, this means that a concentrated portfolio may do better at any given time, but over the long run, diversification enhances your returns and minimizes your risks
  • The best way to maintain diversification is to have an investment policy statement which states your long term goals and outlines what to invest in and how much to invest in certain areas. It is a contract to yourself that keeps you on track. Your financial advisor can help you quantify your retirement goals develop an investment policy that will get you to your goal.
  • Ignore the business news which tends to hype up the latest events. By separating yourself from the media circus, it will be easier to stick to your predetermined financial objectives. Remember, the media’s goal is to maximize ratings and sensational predictions outsells disciplined investing.

Paralysis by Analysis
Katie is a young dentist who is starting to invest for the future. She is an admitted perfectionist which is what makes her such a good clinician. At first, Katie was enthusiastic about researching the various investment choices and was astounded by the number of conflicting products and strategies. She doesn’t want to make a wrong decision. Katie now regrets starting this exercise and hasn’t looked at it for the past three months.

Dentists, by nature, are perfectionists. They are wired to gather and analyze all available data to make a logical decision, and they expect a good outcome. Unfortunately, stock markets do not follow neat, predictable patterns and it is hard to come up with a definitive judgement. In the past, stock and bond investments have done very well over time, but in the short term, investments tend to fluctuate up and down. This uncertainty makes the dental investor nervous. What if there is a better choice out there? What if I make a mistake? When faced with uncertainty, the solution for many is to stand on the sidelines and do nothing – which could be the worst thing for your portfolio.


  • Be clear about your time horizon. If you are 20 years from retirement and expect to enjoy 30 years of retirement, that is a 50 year time frame to consider. Don’t let day to day gyrations affect your decision making process.
  • Work with an experienced advisor who has been through at least several market cycles and have a consistent investment philosophy, then ask them the tough questions. What did they do during the market lows and market highs? Did their process change with changing market conditions? What are their results over the past 10+ years? This will help you feel more comfortable about a achieving a favourable long term outcome.
  • Realize that time is your greatest ally when investing. The effect of compound growth is most pronounced when you start investing early. There is a lot of truth in the saying – “Time in the market is more important than timing the market.”(anonymous)
  • Easing into the markets is a good strategy to combat investment paralysis. Investing smaller amounts at predetermined regular intervals (ie: monthly or quarterly) will allow you to start the process without feeling like you are plunging into the unknown.

Loss Aversion
Our ancestors survived by putting more value on minimizing losses than achieving gains. Certainly, if you lose something valuable, like a food source, it could mean the difference between life and death. Over time, this bias has been ingrained in our psyche. For most investors, the pain of a loss is significantly greater than the pleasure of a gain.

Let’s put this another way. Jocelyn is a dentist with a good quality, well diversified investment portfolio. But hidden from view, she holds a handful of dreadful stocks that have lost virtually all of their initial value. She watched these shares decline over the years but could never pull the trigger to sell them. Rather than cutting her losses and moving on, she was waiting (hoping) for them to pop back up to at least their initial price. This way, she would not have to cement the loss and admit that she made a mistake. Unfortunately, the losses incurred by the underperformers have seriously diminished the gains from the rest of her investments.


  • Accept the fact that your portfolio will include investments that go up as well as investments that go down. It is not the individual holding, but your entire portfolio, that matters. To cope with this, make sure you are clear in your mind on what to do with holdings that are losing their value.
  • For an investment that is not performing well, I like to ask myself this question: “Would I buy this stock/bond today at the current price.” If the answer is no, then the wise thing is to sell the investment at a loss and deploy the funds to a more promising venture.
  • If you are working with an advisor, make sure they have a clear strategy to dispose of underperforming stocks or funds. A consistent “sell” process is as important as a disciplined “buy” process.

Mental Accounting
Jay and Janice are diligent savers. Their goal is to pay off their mortgage as quickly as possible, so they set aside a portion of their income every month for this. In June, they found out that there was a mistake in calculating their income tax. Instead of owing taxes, they received a $10,000 income tax refund. Their goal of paying down the mortgage remains the same, but they used the refund to buy a hot tub and a big screen TV.

This is a prime example of mental accounting where people separate their money into different compartments. Since the income tax refund was unexpected and did not fall in the regular income category – it was easy for Jay and Janice to mentally spend the windfall. In the same vein, people will carry credit card debt with a 20% interest rate while saving money in a GIC for 1.5%. Two different compartments with no communication between the two.


  • Work with your financial planner to develop a comprehensive financial plan. It is a holistic approach that looks at your finances as a whole, not as separate parts. This will highlight steps to optimize your overall financial health as opposed to each individual component.
  • It will be tough, but consolidating your investment accounts will help you overcome the effects of mental accounting. Side accounts or play money accounts should be eliminated or greatly reduced. Focus on the big picture goals and choose a strategy to invest that will meet these objectives.
  • Picking the next big stock is something that keeps many investors energized and entertained. In some cases, active traders have done relatively well. However, keep in mind that even professional portfolio managers have a hard time consistently selecting winners. We think that the better approach is to stick to your plan: Establish your goals. Set aside the funds and the processes to meet your goals. Then additional investments can be viewed as supplements to your income but not the source of your retirement.

For many of us, there is a constant fight in our heads between our emotional biases and our long term financial goals. By identifying the common biases, we are one step closer to resolving the turmoil and creating a clearer path to a consistent investment process. Hopefully, it will make us all better, and happier, investors.

About the Author
Dr. Wilson Chen, BSc., DDS, CFP, FMA received his DDS from Western University in 1992 and over the past 23 years, has built a patient-centered, family practice in Hamilton. In 2014, he sold his practice to take a more active financial management and business advisory role for his dental clients and their families. Wilson is the only practicing dentist in Ontario to hold the Certified Financial Planner (CFP) and Financial Management Advisor (FMA) designations. Wilson can be reached at wilson.chen@raymondjames.ca.

Dr. Wilson Chen is a Financial Advisor with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James. This article is for information only. Raymond James Ltd. member of Canadian Investor Protection Fund.

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