It’s an exciting day at Personal Capital, as we announce that two visionary thinkers in the fields of investment strategy and behavioral finance have joined our Board of Academic Advisors.
Shlomo Benartzi is one of the foremost experts in behavioral finance in the world. He co-authored the book Save More Tomorrow, which is the definitive prescription for increasing the effectiveness of retirement plans.
Harry Markowitz received the Nobel Prize in economic sciences for his work in investment strategy. He is recognized as the father of Modern Portfolio Theory, which is the foundation of most well-managed investment programs today.
“This adds unprecedented power to our ability to conceptualize new and better ways to manage your money,” says CEO Bill Harris. “We’re building the future of financial advice, and Harry and Shlomo are important contributors to our ability to design that future.”
In his most recent book, The Smarter Screen: Surprising Ways To Influence and Improve Online Behaviour, Benartzi investigates our embrace of digital lifestyles and the impact they have on our behaviors – both good and bad. Reviewing hundreds of academic studies including his own, he paints a surprising picture of what works and what doesn’t. (Spoiler alert: in over one-third of the studies, well-intentioned behavioral feedback actually made things worse.)
And he devotes a chapter to something that does work: real-time access to your financial information changes your behaviors for the better. Shlomo and Assistant Professor Yaron Levi studied the spending patterns of people before and after downloading Personal Capital’s mobile app. The results were astonishing. In the first four months after downloading the app, users reduced their total spending by an average of 15.7%.
That result stands apart from the vast majority of efforts to help consumers improve their financial lives, which remain stubbornly resistant to lasting change. And it could have profound impact on today’s biggest looming financial crisis: inadequate retirement savings. Because of the power of compounding, families that are able to reduce their spending by even a few percent will dramatically improve their financial security in retirement.
At Personal Capital, Markowitz’s Modern Portfolio Theory is at the heart of our advocacy of diversification. Diversification allows an investor to capture the long-term appreciation of all markets, while reducing the impact of short-term volatility in each individual market – insulating you from the worst of the white-knuckled ups and downs.
The single most important driver of a successful investment strategy is a well-diversified asset allocation. Most investors agree with this in principle, but too frequently their actual asset allocation does not reflect that goal. As Yogi Berra said, “In theory, there’s no difference between theory and practice. In practice there is.”
Because so many families hold investments in different accounts at different financial firms, they can’t see their asset allocation even if they try. So most people don’t know what their true exposure is to different market risks around the globe. Check out the diversification of your own investments using our free Asset Allocation and Investment Checkup tools.
Both Markowitz and Benartzi bring unique expertise to Personal Capital. Here are quick bios on these two academic giants, whom we are thrilled to enlist in the effort to help you improve your financial life.
Harry Markowitz is the recipient of the 1989 John von Neumann Theory Prize and the 1990 Nobel Memorial Prize in Economic Sciences. He is known as the “Father of Modern Portfolio Theory” for his pioneering work in portfolio construction – which has been the gold standard in investment management for decades, helping investors maximize returns for a given level of risk. He is currently a Professor of finance at the Rady School of Management and the University of California, San Diego.
Shlomo Benartzi is an acclaimed behavioral economist whose focus is combining insights from psychology and economics to improve financial decision-making. Together with Richard Thaler of the University of Chicago, he pioneered the Save More Tomorrow™ program – a behavioral prescription that helps Americans grow their retirement savings and is used by the majority of large retirement plans in America. He is currently a Professor and co-chair of the Behavioral Decision-Making Group at UCLA Anderson School of Management.
Want to learn more about the visionaries who have joined our new Board of Academic Advisors? Visit us here.