We here at MoneyNing.com recommend low cost index funds for the individual investor. Sometimes we write out a good argument, and sometimes we simply state it as fact. This article illustrates what happened with one of our reader’s investment portfolio so you can judge for yourselves whether low cost index funds is for you.

MoneyNing,

I am in the west coast and the US stock market is already open when I get to the office. Sometimes I check the performance of my stocks, and other times I do not (actually, I check it all the time). When I did check it this morning, I noticed that the money in my taxable account went down by 12%. I looked into the details and realized what happened. One of my stocks just reported earnings and the stock went down 20%. Since I had a ton of money in this stock, I was hurt bad. Really bad. Panicking, I sold everything along with Apple because I was afraid Apple was going to down too. I’m really pissed off right now because I checked after hours and Apple is up more than 10% since I sold it. I realized I was being dumb and really want to see if you can recommend some low cost index funds for me to own since I am clearly not cut out for stock picking.

Regards,
MoneyNing Reader

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Let’s face it: we love bundle deals, whether a combo meal at a restaurant or movie theater or a Black Friday media console with accessories thrown in. Marketers know it, too, which is why bundle deals are very common in every aspect of consumerism (there are bundles for services like Internet, cable and cell service, or even insurance).  While bundles make us feel like we’re getting a special value (as sometimes they are), they can also be money pitfalls that lead us to spend more money than we intend on things we neither need nor want.

One of the key reasons we love bundles besides feeling like it’s a better value is the convenience. Standing in line at a fast food restaurant, staring at the menu board and trying to make a fast decision about which separate items we want and wondering what the total will be, we spot the bundled “value deal” with its clear price and the shortcut immediately gives us mental relief.
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We often think of a six-figure income to be the answer to all our problems. After all, if you make at least $100k a year, you must be doing something right — and have plenty of money.

The reality, though, is that there are plenty of people making six figures and struggling to make ends meet.

While there’s no one reason that this happens, here are three reasons why expenses can get a little out of control with your budget, even if you are considered “rich” in the eyes of others:

1. Your Lifestyle Costs Keep Rising

One of the realities of the situation is that sometimes your lifestyle costs rise as life happens.

Things like kids can start taking a bite out of your monthly budget. If you have a growing family, the costs keep rising.

Other lifestyle costs can get in the way too. If you move into a bigger home, that comes with higher property taxes, utilities, and other expenses. Your more expensive car is also adding to your costs.
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Whenever I receive an unexpected lump of cash such as a gift card, bonus, or tax refund, I find myself extremely tempted to treat it differently than other income. Instead of looking at the budget to see where it might best benefit our overall financial situation, I immediately think of what “extra” thing I could spend it on since, well, it’s “extra” income, right? The bills will still get paid and the budget won’t suffer, regardless of what I do with the money.

I’m not alone in this mentality. Apparently, it’s something financial behavioral psychologists call mental accounting. Basically, this means we tend to assign different values to different money sources based on how much effort we put into earning them. Income that’s gifted doesn’t seem like our money, somehow, so we treat it differently, whether more cautiously or more frivolously.

The first tendency, as I started with, is the impulse to spend it. It’s easier to treat extra money with less discretion than we do our hard-earned payroll check. A 2009 study done by Harvard researchers illustrates this point. Participants in one study group were given $10 more per person than those in the other group and told this was “extra” money; consequently, they spent 20% more than the other group.
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Our family lives in plenty of luxury but people who really know our situation sees me as someone who’s fairly frugal. “Why do you sacrifice to save when you can afford more?” is a question my friends often ask me. It’s a pretty pointed question, but what they really want to know is how they can will themselves to save more since putting money away seems like such a negative. Do you see saving money as a sacrifice too and want to know why I do it naturally?

Alliant Credit Union is running a contest where they are asking participants to share their smartest financial decision. As one of the largest credit unions in the country, Alliant knows what smart money choices can do in people’s lives and they are willing to give everybody a chance to win $5,000 to share their story. Perhaps my submission will shed light on why I save.
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Have you ever sat through a bad movie just because you didn’t want to “waste” the money you spent on the ticket? What about a dud of a car that you refused to give up on despite multiple trips to the mechanic? If so, you’re not alone. This behavior is a mental money trap economists and psychologists call the sunk cost fallacy or the escalation of commitment, and it can cost us money, time and unnecessary emotional stress.

Why do we so often stubbornly refuse to count our losses and move on? Let’s expound a little on what the sunk cost fallacy looks like.

Most of us have an instinctual aversion to loss. In many situations, the prospect of losing money becomes more powerful than any other reasoning — even the possibility of coming out ahead. This is easily illustrated by gambling habits. Based on behavioral studies, most people refuse to bet on anything if the promised payoff is less than double their investment.
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