Richard Thaler, the ‘father of behavioural economics’ was interviewed by Merryn Somerset Webb from the MoneyWeek magazine about pensions and fund management fees.
Whereas Richard Thaler holds that teaching people about personal finance is important, he also stresses the importance of “making it simple” and leans towards a “just-in-time” approach to financial education for the sake of usefulness.
After having played his part in the introduction of automatic enrollment in pension schemes in the UK, he now supports “pensions freedom”, whereby people can access pension savings upon retirement as and when they choose, realizing that annuities are not the best solution for everyone. Thaler however points out that such freedom “comes with a need for help and education”.
The professor from the University of Chicago Booth School of Business highlights the fact that individual investors tend to time their trades wrong, which leads to losses. He therefore advises for people not to pay that much attention to the news: “The less attention people pay to the news, (…) the more money they’ll have” since in the long term equities always go up and outperform bonds.
Discussing the fund management industry, Thaler says one of the biggest mistakes buyers can make is to pay more attention to recent returns than to fees, highlighting the fact that next year’s fees will almost certainly be as high as last year’s, but next year’s performance is unknown.
Read the full interview here.
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