I loved watching The Price Is Right growing up (my favorite games being Plinko and the game where you punch the board to reveal the card with an amount of money listed). Now whenever I get the chance to watch it as a grown up, it is on my TV, even though it just isn’t the same without Bob Barker.
In any case, I was watching recently when I realized that you could learn a lot about investing by watching The Price Is Right. (Yes, I did write before about learning personal finance from watching The Bachelor. What can I say, I can relate personal finances to anything!) Here are five things The Price Is Right teaches us about investing.
The Price Is Right And Investing
Time Is Your Friend
When the show starts, four contestants are called up to bid for their chance to get on stage. When one person goes on stage, another name is called to replace them. In all, 9 people are called on stage. Your best chance to get on stage is to be one of the first four people called. This allows you 6 chances to get on stage. If you are the last person to be called on to bid, you have one shot at getting on stage.
What does this have to do with investing? That time is your friend. The earlier you start investing, the greater the chance you will have to retire with a healthy sized portfolio. Likewise, the sooner you start to invest, the less you can invest and still make it count.
For example, if you invest $500 when you are 20 years old and it grows at 8% annually, when you are 65 you will have over $17,000. But invest that $500 when you are 40 and it only grows to a little more than $3,500 by age 65. The moral is to start investing as early as possible so that time and compounding can work it’s magic.
Know The Price (or Cost)
It’s hard to know the prices of the items on the show. But, most of us have a general idea of what things cost and call ballpark it. As long as you can get close without going over, you have a good chance at winning on The Price Is Right.
When it comes to investing, most investors are oblivious to how much their investments cost them. This is unfortunate because the more you pay in fees means the less money you have invested. This is why I like Personal Capital so much. Once my investment accounts were linked, Personal Capital showed me exactly how much I was paying in fees annually. I can even play with the graph and see how much in fees I’ll pay over the course of my life. It was certainly an eye-opening experience.
Some investors even mistakenly associate higher fees with better performance. There is no correlation between the two. You can pay a super low fee and still get excellent performance.
This is why I recommend passive investing. There is no point in paying a high fee if there is no guarantee of getting higher returns. Simply take what the market gives you and you will be fine in the long run.
Don’t Let Your Emotions Interfere
Many times, when people get called up to play the pricing game, they are overwhelmed with excitement. They are so overwhelmed, they have no idea how much to bid, bid a crazy amount, and end up not getting called on stage. Once the excitement wears off, they are able to think more clearly and make a reasonable bid.
The same holds true when getting onstage or in the Showcase Showdown. People get so caught up in the moment that they overbid (or grossly underbid). The moral is to not let you emotions control your decision-making.
The same holds true with investing. When we let emotions make our decisions for us, we end up making the wrong decision. Think about it. When was the last time you make a decision when you were emotional and it turned out to be the right (or a good) decision. Most likely it never happened.
Don’t let your emotions get in the way of your investments. Remember, the market is volatile over the short-term. It is going to have large swings both up and down. But you aren’t investing for the short-term, you are investing for the long-term. The long-term trend of the market is positive. Stay invested and tune out all of the news and hype that you hear. It’s not doing you any good.
Don’t Forget About Taxes
After many contestants win on The Price Is Right, they have what I’ll call tax-shock. This is because most don’t realize that they have to pay taxes on their winnings. And since they are on television, it is hard to get away with not paying the taxes. Just ask Richard Hatch.
Many investors fail to take taxes into account with their investments as well. You don’t need a doctorate in finance or taxes to save some of your hard earned money. For example, most of your taxable bond holdings and REIT investments should be in your retirement accounts since the income generated from these investments is taxed at your ordinary income rate.
Additionally, you should take advantage of tax loss harvesting to limit any potential capital gains you have at year-end. Just by implementing these two strategies can save you a nice chunk of money from taxes.
The Price Is Right is a great show. By watching it with an open mind, you can relate things that happen on the show to issues in your life. Investing is just one example of this. If you want to be a successful investor, you need to start early, know the costs, stay invested for the long-term and be aware of taxes. Doing these four things will help you to be a healthy and wealthy investor.