Speaking of Psychology: Stock market anxiety, with Frank Murtha, PhD

2018 was the worst year the U.S. stock market has seen since 2008 and worries about the economy are continuing in 2019. How do you deal with anxiety in a volatile market? Psychologist Frank Murtha, PhD, co-founder of MarketPsych, a consulting firm to the financial industry, explains how to calm stock market fears and ways to build a savvy investor identity.

Frank Murtha, PhD, is co-founder of MarketPsych, where he specializes in helping financial professionals apply behavioral finance to their work. His path to the financial services industry is a non-traditional one. Murtha holds a doctorate in counseling psychology from The University at Buffalo. While obtaining his PhD, he carved out a niche as an expert on the psychology of gambling and his dissertation explored the effect of cognitive errors in gambling behavior. Murtha is interviewed frequently by news outlets and has been featured numerous times on National Public Radio, Nightly Business Report, CNBC and World Business Review. His book, MarketPsych: How to Overcome Fear and Build Your Investor Identity , was selected by Kiplinger’s Personal Finance as one of “Three Best Financial Books of 2010".

Kaitlin Luna: Hello and welcome to Speaking of Psychology, a bi-weekly podcast from the American Psychological Association. I'm your host, Kaitlin Luna.

2018 was the worst year the U.S. stock market has seen since 2008, back when we were in the throes of the Great Recession. If the stock market is giving you anxiety and making you want to jump ship, you'll want to hear the advice of our guest on this episode.

Dr. Frank Murtha is a psychologist by training and co-founder of MarketPsych, a consulting firm to the financial industry, where he uses applied investing psychology to the financial services industry. Later I'll share an email from a listener about our recent podcast on keeping civility alive at holiday gatherings. If you have any comments, questions or ideas for us, email me at kluna@apa.org. That's kluna@apa.org. We'd love to hear from you. Now let's welcome Dr. Murtha.

Frank Murtha: Hi Kaitlin, how are you doing?

Kaitlin Luna: I'm doing great, but it's wonderful to have you on our show today.

Now, let's start with the current state of the U.S. stock market. The volatile market has made many investors nervous about the year to come and it's probably deterred potential investors from jumping in. So, what's your take on what's happening?

Frank Murtha: People often refer to the markets as climbing a wall of worry and I think that we climbed it so slowly and for so long without looking down that when we finally had a chance we said “boy, we're really high right now.”

So, if you take that – that element, as well as some of the political stuff that's going on and some of the legitimate concerns people have of the state of the world, it's a recipe for volatility.

Kaitlin Luna: And what does the psychological research say about why markets go from being stable to going well to being suddenly volatile like we just experienced?

Frank Murtha: A lot of it boils down to herd behavior – you know, what happens is that a few key people begin making moves and other people follow and it just becomes like a cascade. This sort of thing really only happens after there's been a run-up.

People talk about volatility a lot in the stock market, but they only really seem to care about it when the stock market's going down. When the stock market's going up, people don't seem to mind volatility so much. So, when scary things like what we've experienced happen, especially when most people investing today can remember the abject despair and terror of the banking crisis ten years earlier, it's bound, it's bound to, you know, have people react like this.

Kaitlin Luna: Yeah, it does make me nervous -- I mean watching my retirement go down is a little scary. You know, I know I'm many years away from retirement, but still it's like well you see tens of thousands of dollars lost. Like, you know, whoa and if for people who are close to retirement that's got to be really scary?

Frank Murtha: When you say that, it makes me think of that old joke of somebody who goes to the doctor and they say to the doctor “doc, my, my elbow hurts when I do this” and the doc says, “don't do that.”

And so one of the things that's actually really key for people when it comes to managing their anxiety is to try as much as possible to pay less attention to what's going on – because if you get drawn into a short-term focus and you find yourself following daily, maybe many times daily, if you know if you find yourself checking, you are going to begin to miss the big picture and start seeing trees and not seeing a forest. And it's really a recipe, it's a recipe for disaster long-term investing.

And, and here's the thing – there's so much information available, it's so easy and I do it too by the way -- you just log on, check I wonder how I'm doing today.

Kaitlin Luna: Yeah and the day by day stuff is more is less important than over time…

Frank Murtha: Oh yeah and it's right there, it's available, it's important and I mean honestly, when I, when I first got into this business, psychology, you know, the business of psychology of investing, investing it just begun going mainstream. It used to be something for, you know, in people's minds kind of stuffed shirts on Wall Street who possibly smoke pipes and planned world affairs and rooms with a lot of mahogany and leather and stuff like that – that's all changed. Everybody's an investor now – and, and so, now that it's gone mainstream and all this information has been made available, it's a blessing and a curse.

Kaitlin Luna: Yeah, absolutely. Sometimes too much information is too much and later on we're going to delve into more of the individual investing. But first, I want to talk about your background a little more because I think it's really interesting. I'm sure you've been told this, as well. So, you have a PhD in counseling psychology and originally wanted to be a children's therapist and now you're the co-founder of MarketPsych, so how did you make that change from potential children's therapists to co-founder of a company?

Frank Murtha: I would say I made that change slowly over time and exhausting many alternatives along the way. I love working with kids. What I, what I found was it really ended up ultimately taking a very emotional toll on me. I loved helping kids, but I found that I wasn't always able to have the effect I wanted. I’d bring that home with me and so I look for other populations, other ways in which I could do it and I found the same thing over and over again.

Wonderful, wonderful work done by counseling psychologists. It made – it had, it had an effect on me that, you know, really drained me a bit emotionally. But, I still wanted to help people. I still wanted to apply what I knew and help people's lives be better. And so, I began to gravitate more toward consulting work and around that time and this was back in the late 90s – you remember the late 90s? The markets were booming and, you know, investing had gone mainstream.

Back in the late 90s, I began to get interested in it and it was fascinating to me -- the psychology of investing was fascinating to me. And I had these friends from college and a lot of them were Wall Street guys and I talked to them and I was a psychology guy and they were the Wall Street guys and they'd say, you know, they make some observation about the market and then I'd make an observation that a psychologist would make.

And they'd go “oh yeah, Frank, you know that's it that's a that's a case of market psychology, though. That's not really, you know, the numbers.”

And they, they tended to concentrate on more concrete things and I thought to myself “well, it's all market psychology.” That's what a market is. A market is nothing but the aggregate psychology of its participants.

And I began to think this is really fascinating and it really got in my blood a little bit and so I pursued a dissertation on gambling and cognitive errors made by gamblers because if you're interested in the world of finance, there isn't exactly a very clear bridge from the world of psychology and gambling and the psychology of gambling seem to be it.

So, I, you know, I set out to work with kids and help them integrate into the classroom better and how I'm doing something completely different.

Kaitlin Luna: But, you're still using psychology in both, in both of those fields, which I think is absolutely fascinating that you use psychology and what you do at your current job.

And money and feelings seem a world apart, but you've said they're inextricably linked. So, can you share some examples about how you've shown your corporate clients the importance of understanding their clients’ emotions?

Frank Murtha : Sure. Sure. You know, I think that financial advisors, and I do a lot of work with financial advisors, the people who manage clients’ money and so, you know, they work with money, but they're also working with people and their feelings.

And one of the things that I think the people in financial advising can learn from the field of counseling psychology is that people really tend to want to jump to solutions. You know, you're an advisor and you're in the room with somebody and you already have in mind what the remedy is to their issue, to their problem. You may even find yourself shutting down that person's emotion. Maybe they're a little bit, maybe they're a little bit anxious. And so instead of hearing that person out, that client, what you say is “oh no, there's no need to worry” and then you have your explanation.

Or maybe they're feeling a little bit down, a little sad and so you say, “oh, cheer up, it's going to be fine.” The tendency to want to remove the emotion from the equation and get right down to the solution is a problem in the field, I think, because I like to say financial advisors don't say the wrong things. They say the right things before the client is ready to hear them. And anybody who's done clinical work can appreciate how important it is to build that relationship, to get the client into a position where they feel heard, where they feel understood, where you're actually able to have that effect. There's a lot more listening that goes into this field than most people would believe.

Kaitlin Luna: Yet, really also acknowledging is that people how people are feeling about their investment decisions I think is important, too. Because it means sometimes, I think, like you said people not as though financial advisors say the wrong thing, but they're also trying to go into solution mode, which sometimes as you know as a psychologist, I know from working at APA, that that doesn't necessarily always help to go in a solution, but sometimes you just want someone to acknowledge how you're feeling – okay, you're feeling nervous, you know, to at least in the bridge to offering a solution. So, I'm sure it's quite a new way of thinking for your clients -- how to approach their work.

Frank Murtha: Yeah, you know I agree 100 percent Kaitlin and it reminds me of, of this cartoon. It's a cartoon of a man and he's in a kind of a comfy chair and you can see he's at the edge of a cliff and he's kind of looking out down over the cliff and a woman is next to him, presumably his wife, don't want a stereotype and what it seems and she says to him is this guy he's kind of like staring down over the cliff in his comfy chair and she says “if you want to have a positive outlook, you're going to have to turn your chair around, Walter.”

And it's great, but and I use that and it's cute and people get a chuckle, but I go okay, what is the way that you get somebody to turn the chair around? Right? Is it to say, no, turn your chair around, view it this other way. You're seeing it wrong. I'm disagreeing with you and telling you the right way to see it.

No, that's not how it works. What you do is you pull up your chair next to Walter. You look at what Walter or whoever it may be is looking at and you go “what are you looking at?” “What do you see?” Wow, and you talk about it and you let them understand, you understand, and you see it too. And if you do that and you work with that person in that way, then you buy yourself the ability to say “all right, but what if we turn our chair around?” “What if we look at what's going on behind us?”

But you can't do that by forcing the issue. So, it's a lot of, it's a lot of good listening, recognizing the emotions that people are feeling and, I mean, it gets back to, it gets back to Carl Rogers, you know? I mean every fight, if financial advisors would watch Carl Rogers videos or read his book, I guarantee you not only would they be helping their clients more, they'd increase their book of business dramatically.

Kaitlin Luna: That's fascinating and you, earlier, before we start our conversation we talked about some of the stereotypes of people in the day traders, financial advisers and what came to mind for me with some of the characters in the “Big Short.” You know, and those stereotypes generally are not that positive, you know, they're chaotic -- you know, New York Stock Exchange floor people running around or, you know, those wealthy investment bankers with these huge offices over Central Park with mahogany furniture -- you know, what other people might think about Bernie Madoff who's the former investment adviser who went to prison for creating a massive Ponzi scheme. And so, you know, we do know that stereotypes are not fair and they're really not helpful, but, you know, those ideas likely do persist in the minds of many people. So, do you think that MarketPsych’s approach helps combat those stereotypes?

Frank Murtha: Well, yeah, first of all those stereotypes for, you know, they're absolutely out there. I can tell you in my experience, people who behave in such a way are a very, very small minority. Most of the people in this business are in it for the right reasons. But obviously, it only takes it only takes a couple of high-profile people to change, you know, to change the impression of an industry like that.

As far as MarketPsych goes, I hope what we're doing is helping people recognize that in order to serve their clients better and help those people, those clients live the lives they want to live, you really do have to understand who they are, be able to show that you understand and respect that and have better, deeper conversations about why they're doing this and what they want the results to be.

But, you know honestly, people in the financial fields are just not trained this way. I mean, the way, the way people in psychology field are trained and the way people in the financial field are trained, there's be, there's only lately as I've been any crossover. I mean, they were just parallel lives that lived next to each other and had no idea they, you know, the next day who their next-door neighbor was for years.

Kaitlin Luna: Right, I'm sure maybe some if you're going to school for economics or finance, business, what not, it may be would be helpful to have some psychology courses in the mix, at least, to say okay let's get in the minds of people who you're working with because again, I mean, their job depends on clients and their clients’ success.

Frank Murtha: Yeah, you know it's interesting. There's a field out there that's gotten a lot of buzz lately. It's called Behavioral Finance and the reason it's called Behavioral Finance is because the finance people found it first and not the psychology people. Otherwise, it would have been called Financial Psychology.

Because that’s what it is. It's just taking a look at the emotions and cognitions that lead to financial decision making and financial behavior and it's really -- it's a surprisingly new field. You could even say that there's been behavioral finance books written in the past, but they just didn't have a shared vocabulary.

So, yeah, absolutely. Absolutely. This is, this is really important stuff.

Kaitlin Luna: Yeah, I want to shift more toward individual investors. So, you and your co-founder Richard Peterson, who's a medical doctor, which is also very interesting, wrote a book a few years ago called MarketPsych: How to Manage Your Fear and Build Your Investor Identity , which you've told me was named one of the best financial books of the year by Kiplinger's Personal Finance.

So, can you explain what an investor identity is?

Frank Murtha: Sure. An investor identity is an understanding of who you are as it pertains to your approach to investing. So, you know it encompasses things, such as what are my values? What do I care about as an investor? What are my motivations? What's going on under the surface that's driving me to do this? What's my investing personality? One of the things that MarketPsych does is we actually have modified personality tests based on, on the neo that take a look at the five personality factors and how they pertain to people's investing habits.

Another thing, another part of identity, which is actually really, really important is understanding what your strengths are and what understanding what your weaknesses are. Without that, you know you're, you're going to well, let's put it this way, it makes your job an awful lot harder.

You know, a thing about this subject, almost everybody will tell you that in order to be a good investor you really have to know yourself. And that's true. But then most people don't actually go through the necessary work to figure out what that would look like.

You know, when it comes, when it comes to investing, a lot of it boils down to what makes a good fit. I'll give you an example. A sort of an analogy. Getting in good financial shape is a lot like getting in good physical shape. Right now, if you want to get in good physical shape you'd need a diet, an eating plan and if you go online or go to a bookstore, if people still go to bookstores, you'll see there's so many choices out there. And the thing that makes it a little challenging is, basically, they'd all work. I mean, quacks, quacks aside, all of those plans would work if you follow them. So, how do you choose? How do you choose the right way to go about things?

And the answer is, we don't choose the plan that in theory would work. You choose the one that works best for you. The plan you can best follow. The same way you would if you were trying to get in better shape. And I think you can't really do that until you take a good look at who you are, you know, and figure that out first. That’s the key.

Kaitlin Luna: So, is that things like looking at your spending habits or like your values with money, like is it, what can you explain it with that it would be a little bit more? Like when you're looking at your own spending habits or saving habits or as life goals?

Frank Murtha: Yes, that's all part of -- that's all part of the picture. I tend to focus less on personal finance and things like your spending habits and more on investing -- you know, in terms of what do you you know, wealth creation for your future with goals in mind, financial planning. That's where I tend to spend most of my focus.

But yeah, I mean all of those things definitely factor into it. I mean, I'll tell you this. Here's, I think this is an important way of looking at the investing process and I think it's massively underappreciated and I don't know if I've ever heard anybody else really think of it this way, but the biggest factor in investing is peer pressure. I mean that absolutely and I mean that quite literally. If you think about, you know, a person listening to this podcast -- they probably have some money invested, you know 401k or a retirement plan and they're thinking of themselves “okay, I'm going, I'm going to invest this money” but everybody else who's investing is your peer. We're all peers.

Now, how do you know if you like an investment? What drives whether something goes up in price and is a good investment or down if the extent to which other people like it, right? So, if other people like an investment, your peers, quite literally like it, it becomes more attractive because it rises in value and it causes you to want to like it. And it works in reverse too and so overcoming peer pressure in investing is really the same way we overcome peer pressure growing up -- peer pressure in our lives.

And I think of going back and I'm searching the memory banks here, but it reminds me of Erickson and his psychosocial stages. Right in teens, what's the stage? It’s identity versus role confusion. The main psychosocial task of an adolescent is to figure out who the heck they are, right? And that's what's happening with investors. Most investors are chronologically adults. They've lived long enough. They've amassed some money.

But as far as their development as investors, they're really adolescents and I don't say that in a pejorative fashion. They don't know who they are. They know enough to be dangerous, but not enough to really know what to do with their money. So, they kind of look around like what are other people doing. What the markets doing? What did my brother-in-law tell me at, you know, at that 4th of July barbecue? That's the natural thing. So, in order to combat that, you have to figure out who you are, just like when you were a teenager and you said, you know what, I kind of don't feel the need to go along with the crowd so much.

I know what I like. I know what I don't like. I know what my goals are professionally and personally and I'm going to go after them and it really gives you the ability to resist the storm. It gives you an anchor and that's storm out there of investing because it's really, really hard if you don't know who you are, and you will get blown this way and that by the market. So, for me it really boils down to doing the work necessary to figure out all the aspects of an investor identity, so you can overcome market peer pressure and invest in a way that's right for you.

Kaitlin Luna: Do you think that might come down to just like being a teenager? Does that come down to being self-conscious and, you know, worried about what other people think and like, if I don't follow what other people are doing, I'm going to make a bad financial decision?

Frank Murtha: I think that can be part of it. I think that can be part of it. I think a lot of it boils down to a lack of confidence and not really having a clear sense of purpose.

Kaitlin Luna: Yeah, so those two things are really important, too. I guess that's where it comes, the importance of an understanding or investor identity and seeking out information and seeking out expert help, it's probably helpful for building your confidence because if you're going into it and without any knowledge you might not be making the best decisions. Is that correct?

Frank Murtha: Absolutely. You know, you said of a lot of important things there. I do always think that it is best not to do this completely on your own. And I'm not saying that you need to have a financial advisor, but I do think you need to have other opinions, experts, if nothing else just to bounce your own ideas off of to help keep you on the right path.

You also have to do the work. It really pays. Do the work to understand a balance sheet. Understand some of the basics of investing because otherwise you're really operating in a world that, you know, it's like me going into the mechanics – you know, they tell me I got a problem with my engine and they mention oh, oh yeah, you know your carpet, I don't know what's going on.

I'm at their mercy. You don't want to be at the mercy of other people. It doesn't take that much to get yourself up to, at least, cruising altitude where you have the necessary, necessary knowledge.

And then lastly, I think taking a good look at yourself as an investor. What works for you? Not just understanding what the numbers are.

Kaitlin Luna: And so, your book also has a whole chapter about managing investing emotions. So, what do you tell people and we did touch on this earlier about your talking with a herd mentality about people and their anxiety. But, what do you tell people in this in the book?

Frank Murtha: Well, you know I one of the things that I say when people talk about investing emotions is that making money is not the goal of investing. And some people hear that, and they think I'm crazy – pardon the expression.

And some people hear that and go “absolutely right.” The reason is this. All investing decisions are attempts to meet emotional goals or emotional needs. Investing is always a means to an end and there's such a tendency to focus on the means and forget about the why. We talk about the what – what should I be in right now? How’s Apple doing? What about overseas investing? What's a REIT? You know, a is fixed-income good? All of that “what” is a worthy conversation – that the really important conversation is the “why.”

What am I doing this for? And if you can establish that, the what flows naturally from it. So, if you recognize that as long as you're – and actually this is something I talked to talk to financial advisors a lot about – as long as the conversation and your framework for looking at investing with the client is around numbers and that's your language, we're all very facile with that language. It's easy and it's important when it comes to this subject. But, as long as you're looking at numbers, you're always going to be off center from the nerve center, where people are really making their emotional decisions and so you have to translate all of that into the meaning it's going to have in the life of the person and how they're going to feel.

Because you know, we have emotional needs and we have financial needs and we always think we're investing for the financial needs. Not so. that's a means to an end.

Kaitlin Luna: That's really fascinating. And so, what are some common investing traps people might fall into?

Frank Murtha: Common investment – oh, there are so many.

Kaitlin Luna: There can be a whole separate episode on that.

Frank Murtha: And I, oh my gosh, I can tell you from experience I've suffered some injuries walking that road, falling into a pit here or there or wandering off the path.

So, yeah, I mean, the investing traps. There's a lot of them. I think one of the biggest ones is this – you know, it's called anchoring. You know, you, you anchor yourself psychologically and emotionally to some number – some baseline number that may or may not be appropriate. So, and one of the biggest anchors is the price you paid for an investment. Let's just say for stocks, you get into company XYZ at $100 a share and then it starts to drift down and it's kind of languishing and the market is even going up, but you're XYZ Corp, which you bought at 100, now it's around 90. It's drifting. It’s not going anywhere and that chucklehead neighbor of yours is talking about how he's invested in Amazon and he's doubled his money over the past year. And now it’s starting to grate on you that you still owned XYZ Corp.

Now, maybe the best thing for you to do is to get out of that investment. Well, maybe the best thing to do is to hold on or buy more. All of those things might be the right way to approach it. But, what a lot of people will do is say I can't let go of it until I've made my money back. It's something that people tend to call break-even itis.

And so, what happens is you end up clinging to these positions that go down. And because you're meeting – you're not meeting your financial need at this point, are you?

The best financial decision objectively may be to do something completely different. But, what you're doing is you're serving some emotional need not to be wrong – not to feel foolish – not to feel like a failure.

And so, you can't serve both of those. And so, what you know so often people get trapped in positions. And this is something I bet you people listening to this, if they're anything like me can relate to.

What ends up happening is that you end up sort of collecting these investing dust bunnies because you can't let go of them and they end up cluttering up your portfolio and you end up ending a bunch of owning your portfolio ends up being a whole bunch of down stocks that you cling to because you were so busy trying to break even on things or even engaging what's called the sunk cost fallacy, which is something along the lines of well, it's so far down now there's no point in selling it.

That is almost never – that is almost never a good way to approach a position that people trapped themselves in bad investments and it really is painful and it really affects people and we're all, you know, we're all cut out to do this. It takes some real work and help to avoid doing it.

Kaitlin Luna: And that applies to so many things in life – you think about clutter in your home or being in a bad relationship or a bad friendship or like the parallels are just amazing sometimes. I think you think of finances as just simply about simple economics and money, but it really is so much more. I mean, you talk about, like, just wanting to hold on so much and cling to those, those investments that are not serving you anymore. Like, wow. Yeah.

Frank Murtha: Yeah and you know what? That's, that's true and I think the relationship with people is a very apt one. You know, I mean we're here talking about investing psychology, but if you just want to talk about, you know, relationships with other people, the same rules tend to apply.

And you know, I think, I think they can make very good examples and a great way to communicate what a person's doing in a way that they can understand and get out of -- you know, when you make these parallels.

Kaitlin Luna: You talked about fear, so my question is why people might be scared to invest and how do people move past that fear? So, whether they're scared to jump in or scared to sell the stock that's not helping anymore, it's not doing anything good for them, how do you motivate people to move past that?

Frank Murtha: You know, that, that is, that is an issue, which a lot of financial advisors face. It's worth my noting if I haven't done it earlier that I don't give investing advice. That's not what I do. And nothing I'm saying here is investing advice. But, I do work with people who do give investing advice and when they have a client who is kind of stuck, they don't want to move. A lot of times it boils down to a sense of control and there's a lot of different factors that go into it.

Sometimes, they're really not sure the right thing. You know, like what, you know, that there, there's so many choices that they find themselves paralyzed by that – just the sheer amount of things they could do.

And so many people are afraid of taking a wrong step that it's just easier for them not to take a step at all. And that's one of the biggest mistakes. So, one of the best ways to address that is to help meet that sense of control, which is really like an antidote to investing anxiety and start by maybe taking a small step.

Well you know we kind of talk about kind of jumping in. Dip your toe, dip your toe in the pool. Don't, you don't have to jump in and it'll make it easier to make subsequent decisions once you've started that process because you don't have to start the process anew. It's a matter of continuing something and using the emotional inertia to keep yourself going.

But, a sense of control is one of the and it doesn't actually have to be real control. Here's the thing. You know people talk about the illusion of control and psychological literature. It's not actually being able to control everything because let's face it, we don't have that kind of control over our investments.

Markets do what they do. The Fed raises rates. You know, we elect Donald Trump. We have, well in that case that we decided that collectively, but individually we don't have the ability to decide these things. So, we have to focus on what we can control. And that's where a good financial advisor will help the person, help the person do that. And that helps get people comfortable enough so that they can begin to make the decisions they need to.

Kaitlin Luna: And you talked about the importance of financial literacy, especially for younger people. Can you talk about that a little bit more?

Frank Murtha: Yeah, I think this is a real problem and I think it's been a real problem for a long time. You know, I'm, I'm older now. You know, I'm, I'm what you'd call middle-aged. You know, for all my life, I didn't have anybody teach me how to proceed in a responsible and planful way with my finances.

And I remember when I got out of my counseling psychology program at University of Buffalo. I remember thinking, “all right, I'm going to be getting a job. I'm going to be making money.” And really, having no clue of what I should be doing.

All right. And that's somebody who actually was interested in this subject. I think that if we can begin to teach young people especially, because even little kids get this. Even at a pretty young age, a lemonade stand, you know, you know people, people understand these concepts before, you know, before they're giving credit for it. We could help solve an awful lot of problems for this country. And if you take a look, I'm starting to get – I don't mean to get political here, but if you take a look at all the entitlement programs and all that people are relying on the government for, it really strikes me that if you're able to give people – because who knows if all that stuff's going to be there -- everybody talks about Social Security. We just don't know if it's going to be solvent. That's just something that we'll have to find out altogether.

But, it seems to me that more so than ever, the ability to appreciate simple concepts like avoiding debt, an appropriate use of credit cards and saving and the beauty that is compound interest for your investing are really not difficult concepts and when learned at an early enough age, will make massive differences – not only in the lives of the individual people who put these into practice, before the country as well. And I'd like to see, I'd like to see a lot more of it in the school system and otherwise. It's – it's a real, it's a real interest of mine and more than that, it's something I feel really passionately about.

Kaitlin Luna: Yes, somewhat like delaying gratitude, which I think is always a challenge for people, for humans probably, in general and the younger people too, is like when you invest and you save or you know is your first job, you even, if you're not making a lot of money, you put a little bit of money into a 401k. It's that delayed gratification of this is starting a nest egg. This is starting something that will eventually help you in the future. It's so hard to see it when you're 22 and fresh out of college, but so many people I hear look back and they're like “oh, I wish I had done that” because of compounding interest, as you spoke of and starting early and having 35 years of money in the system, as opposed to starting when you're 30, where you have fewer years.

Frank Murtha : If people actually saw the effect that time has on investing, like you said, maybe starting when you're 20 versus starting when you're 30, it would open their eyes and blow them away. I've yet to meet the person who sees what compound interest does and doesn't go “holy cow, I just had no idea that it was that powerful.”

And I think a lot of it is just cultural. It's, it's difficult to save for basically most people. It's just part of the culture at this point. A great book on the subject The Automatic Millionaire and it gets at how people don't even recognize the opportunities they have to save. They go “well, you know, I'll put some money away when…”

You know what? If you can actually form that habit young when you're talking about saving allowance or doing something doing something with the gift money that you got – if you can actually build that habit in at a young age, you will be – your life will be different. I mean, it will change your life like few other things and I think part of it boils down to you have to – you're not going to get the extrinsic reward, right? The extrinsic reward is something that comes a long time in the future. But, you have to recognize the intrinsic reward. Feeling good about making that decision -- it ought to give you a sense of comfort, a sense of security, even perhaps a sense of pride knowing that you're doing this and taking control of your life.

And I think that's one of those things that needs to be instilled in people – that yeah, it may feel like you're sacrificing. Maybe you don't go out to the same restaurant you would have. Maybe you know, maybe you cook food for yourself. Maybe you don't buy the toy you want. But you can, it's not the loss of those things. It's the gain of feeling really wonderful of watching this project grow and watching, watching, you know, watching you build something – literally build something that'll be with you the rest of your life.

Kaitlin Luna: Absolutely. I think it goes a long way just to doing it when you're young – and I mean where this is going off and we're in like the marketing angle, but we're bombarded with so many messages about spending money and buying things and loans and you know, buying things beyond our means that it's so difficult to know that you need to put money away, you know? I mean and yeah, yeah, not even just in the stock market, but in your own saving account, savings account so you have that, you know, that cushion, that ability, so you're not, you know, living paycheck to paycheck if you can avoid it. Obviously, there's extenuating circumstances for many people out there, but you know if you're living more of a comfortable life, you know, instead of maybe purchasing a new car, it's like you know why don't I put that money into my savings account and invest in some other way, but it's so difficult to get beyond all the temptations that exist.

Frank Murtha: Yep. No, it's true. You know, it's interesting. People actually know what they're supposed to do. I don't think they always recognize the opportunities they have and build the habits. They don't get the emotional leverage on themselves to execute what they know they ought to do.

Like for example, I’ve got two kids – one is nine, one six. Both of them know how to be healthy. How do you actually be healthy? Well you got to eat right and exercise. Exactly. Eat right and exercise. Everybody knows this. Children know this. Now we have an obesity epidemic. It's not education people need, right?

Now it may be when it comes to investing knowing the right things to do because that, that anxiety from not wanting to do it wrong and the and the uncertainty can prevent people from moving forward or not recognizing the opportunities they have to exercise what it would be, you know, good behaviors.

People know you’ve gotta invest, save money, invest for the future, buy and hold. Everybody knows this. They need help in doing it. And I think that if you can instill the right habits and help them take, take the right way of looking at things at a young age, it may not it may not be quite the chore that it seems to be when you get a little bit older.

Kaitlin Luna: Absolutely and I want to leave listeners with some tips about how – where they can learn more about investing basics in the stock market. So, do you have any advice on where these, where people should start to learn about all these topics we mentioned, like compounding interest, financial literacy topics, things like that.

Frank Murtha: If you want a financial literacy book, there are, you know, there are a couple that come to mind. I'm Beating the Street by Peter Lynch was a seminal book for me that was fascinating and that one helped teach me how to analyze a balance sheet. So, that's, that's a bit more technical, but it's also very reasonable, readable.

The Money Game by Adam Smith is just a really fun read. Of course, you can always go online and get these things at different sites. I recommend talking to other people, as well, but I mean if you want, if you want like a nuts and bolts, how am I supposed to learn about the mathematics of investing, Beating The Street by Peter Lynch and also Beyond Fear and Greed . Beyond Fear and Greed by Hirsch Ephron is a great book that addresses some of that, but really gets more at the psychology, the behavioral finance of investing.

Kaitlin Luna: Okay, perfect. Yeah, I'm actually writing these down for myself.

Frank Murtha : Yeah, I mean honestly, I think I mentioned it before, Automatic Millionaire by David Bach – that one, that one is, I've given that book to multiple people. I just think, I think that's a great place to start and it addresses more the how than the what but, but, you know a really great book. The information’s out there, Kaitlin.

It's the best time ever to actually learn about these things but as we know, you know, having more information doesn't actually make you a better decision maker a lot of times. So, there's an awful lot of work that has to go into understanding yourself, you know, before you can put fully put into practice all that great information that's out there.

Kaitlin Luna: And going after reputable sources, like you said, like if you're seeing who the author of a book or a blog is too is important – it’s someone who has a, you know, the background you think is, will give you, provide you with the best information.

Frank Murtha: Yep, yeah, absolutely. And you know, like I said before, I think it's really important you start your journey on yourself, but by yourself, but involve other people along the way. It's, it's really important to help get the perspectives of other people and it'll help you develop your own perspectives.

Kaitlin Luna: And do you have any final advice for investors as 2019 progresses?

Frank Murtha: Reminds me of the end of Hill Street Blues. I sign off my blog post this way a lot of times – “hey, let's be careful out there.”

Kaitlin Luna: Is that your advice?

Frank Murtha: That would be my advice. I wouldn't give market advice, but you know what, you want something a little more concrete? I would say this. Have a plan. It can be a plan with contingencies but have a plan. And there's some good reasons why. Not only will having a plan make it more likely that you can put into action behaviors that will help you, but at some point, we're really going to have a crisis. I don't think what we've experienced lately fully qualifies. It was scary and unnerving, but it's not a panic. But, someday that panic is going to come because it always comes. We just never know when and when it does, when you have a plan, not only you have steps you can take, but simply the value of having, you know, the security of knowing you have that plan is what keeps people from panicking in the moment.

I mean, one of the things that I think is interesting is it's not necessarily that the steps within a plan are optimal. That's great if they are, but the psychology of knowing when it happens – aha, I anticipate this. I am ready for it. I have things I can do. Very few things take back that so important sense of control like taking inaction and when you have that the ability to do that all of these crises, become frankly to become opportunities if you look at them the right way.

Kaitlin Luna: Thank you so much for joining us, Dr. Murtha. It has been a pleasure having you on our show.

So, if people want to get in touch with you, how would they do that?

Frank Murtha: Sure, I’d love that. Best way’s probably my email .

Kaitlin Luna: Great, well thank you so much.

Frank Murtha: Thank you.

Kaitlin Luna: Now is the time to share a listener letter. This one's in regard to episode 70 – how to cope with political discussions and keep it civil this holiday season.

Before he passed away from cancer a few years ago, I partnered with someone with very different political views to me. So, I really enjoyed hearing from your guest. I didn't know any other couples who disagreed on political issues like we did and we had to work around our differences, find common ground and learn from each other. Disrespect or dismissal of conservative viewpoints by liberals and vice versa is everywhere on TV, comedy movies, lifestyle shows, documentaries and in social situations where agreement is just assumed. But, I hadn't seen my own side's culpability before meeting my partner and it opened my eyes and made me realize how important it was to keep things civil on both sides. Thanks for the great podcast. Lots of useful tips on how to have good relationships and manage tricky discussions.

Thank you for your note and for listening. If you have any comments or questions for us again email me at kluna@apa.org, that's kluna@apa.org. Also, if you've been a longtime listener or are new to our show, please consider giving us a rating in iTunes or if you have time write a review. We'd really appreciate it.

Speaking of Psychology is part of the APA podcast network, which includes other great podcasts like APA Journals Dialogue about the latest and most exciting psychological research and Progress Notesabout the practice of psychology. You can find our podcasts on iTunes, Stitcher or wherever you get your podcasts. You can also visit Speaking of Psychology or to view more episodes and to find resources on the topics we discuss. I'm Kaitlin Luna for the American Psychological Association.