The Behavior Gap
by Carl Richards
Key Concepts
Behavior Gap
The measurable difference between market returns and an investor's actual returns, caused by poor decisions.
Financial Pornography
Sensationalized financial media that triggers emotional, often detrimental, investment actions.
Simple Rules
Establishing clear, pre-defined financial guidelines to prevent impulsive, emotion-driven choices.
Sketch Your Plan
Visually simplifying complex financial situations helps clarify goals and reduce anxiety.
Control What's Yours
Focus on controllable factors like savings rate and costs, not unpredictable market movements.
Action Items
Automate all savings and investments to remove emotional interference.
Ignore daily financial news and market predictions that provoke irrational behavior.
Create a simple, written financial plan and commit to following it consistently.
Visualize your financial situation and goals using simple sketches to gain clarity.
Prioritize saving more and reducing costs over chasing high returns.
Core Thesis
Our emotional biases consistently create a "behavior gap" that sabotages rational financial decision-making and long-term wealth.
Mindset Shift
Success in personal finance hinges not on market timing or complex strategies, but on mastering one's own behavior.