Sunday Email: Too Good to be True / Conversations

Read time: ~ 6.30 minutes

Happy Sunday!

Every Sunday I offer strategies for the week ahead and a thought to fuel your action.

It’s a theme we see time and time again.

Despite the implosions, the losses, and the lessons learned… it continues.

Just recently, yet another Ponzi scheme made headlines.

2,000 investors contributed over $300 million to a scheme that promised—what else?—10% quarterly returns or a 40% annual return.

In just four years, this firm went from $0 to $300 million, based on that seemingly golden promise: 10% quarterly returns.

Despite all the red flags, people still fall into this trap.

Why? Because it’s the allure of “too good to be true” opportunities.

Even though deep down we know better, and history has taught us plenty, humans—2,000 in this case—continue to believe in the unbelievable. We chase the impossible time and time again.

At its core, this behavior is driven by a desire for escapism. We want to escape our current challenges, dissatisfaction, or financial worries. And that chase for a dramatically better future is a powerful motivator that often blinds us to rational thinking.

At the heart of it, financial security is the ultimate dream. More specifically, we dream of a life free from stress and worry about money. We know that achieving this requires hard work, time, and consistency, but we still yearn for a shortcut.

We search for options that promise to accelerate our journey to financial peace. And in today’s world, where we’re constantly reminded to “live life to the fullest” and that “tomorrow isn’t guaranteed,” the urge to find that silver bullet is stronger than ever.

With social media amplifying the noise and data accessible at our fingertips, we are constantly presented with opportunities that seem real—and seem to get us there faster.

But that search is elusive.

Morgan Housel, the author of The Psychology of Money, describes it well: financial peace is elusive. What we want is freedom from the anxiety of managing money.

But instead of freeing ourselves, we often create habits that do the opposite. We grind, set unrealistic savings goals, and take on more stress.

After decades of grinding, we may finally reach financial security. Yet, the anxiety and stress around money remain deeply ingrained. It doesn’t just disappear once the money is in the bank. We’ve built a life around these stress-inducing behaviors.

Suddenly, we’re financially secure, but mentally, we’re still far from peace. We struggle to spend money or invest properly, paralyzed by the fear of losing it.

The elusive nature of financial peace drives us to take shortcuts, like risky investments or get-rich-quick schemes.

What biases drive us into these traps? And how can we recognize them in Ponzi schemes and other risky behaviors like pulling money for startups or real estate investments without proper planning?

Here’s a look at five critical cognitive biases from behavioral science that play a significant role:

1. Optimism Bias

Optimism bias leads us to overestimate the likelihood of positive outcomes. We convince ourselves that we’re the exception and that this time, it’ll work out for us.

Even when we see the risks, we believe we’ll be the ones to overcome them. And why? Because we’ve built a narrative in our minds that supports our desired outcome. This is where confirmation bias comes in—we cling to the information that aligns with our hopes and dismisses the rest.

One key element of this bias is our inability to truly perceive the future. The risks, while acknowledged, feel too distant to have actual weight. We convince ourselves that future risks—like losing money—are abstract and less significant.

This disconnect between present decisions and future consequences allows us to downplay risks and continue making irrational choices.

2. Illusion of Control

Humans crave control when faced with uncertainty—especially regarding our financial future.

Retirement, financial security, and long-term planning are distant and unfamiliar concepts for most of us, so we latch onto any sense of control.

We pick the numbers in lotteries, believing that doing so gives us some control. In Ponzi schemes, we convince ourselves that our knowledge or relationship with the person in charge means we have control over the outcome.

Real estate investing is another example. People feel they have control over buying and managing properties, often overlooking the complexities involved. Yet, the illusion of control makes us believe we’ll succeed where others fail.

This illusion, combined with the optimism bias, creates a dangerous combination that can lead to poor financial decisions.

3. Availability Heuristic

We tend to anchor our decisions on the most easily accessible examples—and, unsurprisingly, these are usually success stories.

The lottery winners, not the millions who lost, are all over the news. We hear about neighbors or friends who struck gold with their investments, not the ones who lost it all.

Because these stories are so much more visible and memorable, they skew our perception of reality.

Entrepreneurship, for example, is often glorified. We hear about the success of people like Mark Zuckerberg, but we rarely hear about MySpaces and other failed ventures. We also don’t hear about the personal sacrifices made along the way—the sleepless nights, the strain on relationships, and the toll on mental health.

4. Overconfidence Effect

Tied closely to the illusion of control, the overconfidence effect makes us believe that we’re more knowledgeable or capable than we truly are.

We remember the one investment that paid off but forget the ten that didn’t. We highlight our real estate or stock market wins while conveniently ignoring our losses.

This selective memory fuels overconfidence, reinforcing the belief that we know better and that we’ll make better decisions next time.

5. Near Miss Effect

The near miss effect is perhaps the most insidious bias at play. It’s the reason people continue to gamble after a “near win”—because that little bit of success feels like we’re getting closer to hitting the jackpot.

With Ponzi schemes, people rationalize their involvement by pointing to the returns they did receive, attributing any losses to external factors like the market or timing, rather than acknowledging poor decision-making.

As wealth managers, it’s critical to recognize that these biases don’t only appear in extreme cases like Ponzi schemes or the lottery. They’re present in our everyday conversations with clients—whether it’s taking on speculative investments, abandoning financial plans, or reacting emotionally to market fluctuations.

Over the past decade, risk tolerance questionnaires have become a staple in our industry. They help us gauge a client’s appetite for risk, but they don’t paint the full picture.

Every one of us has these cognitive biases. The key is understanding how they manifest differently in each individual.

The first step is asking the right questions—not a set list but dynamic, open-ended questions that lead clients to explore their rationalizations. Through active listening, we can help clients recognize the conflicting nature of their thoughts and actions, which sparks true awareness and change.

Checklists are another powerful tool. They create a structured, repeatable process that helps clients make more thoughtful, less emotional decisions.

For instance, before a client makes a speculative investment, a checklist could encourage them to wait a week, allowing the initial excitement to fade. Alternatively, during the onboarding process, we could provide clients with a decision-making framework they can rely on whenever they feel tempted to make a sudden financial move. It becomes part of making decisions when working with you. And this is established at a time of neutrality as opposed to high emotions.

It’s about building a system clients can turn to when they’re in a neutral state of mind—before emotions and biases take over.

Reflecting on this, I’m reminded of The E-Myth by Michael Gerber. His message about creating effective, scalable businesses through repeatable processes applies just as much to our work with clients. We need to build frameworks and checklists that help us serve families consistently and provide deeper insights into their decision-making tendencies.

Ultimately, it’s not just about identifying risk tolerance—it’s about understanding the full spectrum of cognitive biases and how we can proactively address them through thoughtful, intentional practices.

A Thought To Ponder This Week

I feel that we can’t have difficult conversations in our world today.

We struggle to talk about politics between individuals who support different parties.

We struggle to discuss our views or to hear those of others.

It seems that we approach conversations with the intent to convince as opposed to connect.

Polarization is real. And it’s detrimental. And it’s not a single moment, person or action that has driven this.

It’s cumulative. And it’s on each of us.

I believe that it is more necessary than ever for us to not avoid difficult conversations. To avoid just going deeper with those that agree with us. Rather we should seek out the opportunity to tackle the topic head on with those who see things differently.

This challenge won’t resolve itself. There is no easy answer.

The only answer is to put in the work. Go through the uncomfortableness. And have an open mind.

Not only does this challenge pose risks to our personal relationships, it hinders our ability to serve our professional relationships.

Without trust, without an open mind, without an ability to see, hear and connect despite differing views, our abilities to make a positive impact are lessened.

Thus, as we head into the week, it’s time for us to work on ourselves. And ask what we can do on our own to allow us to have an open mind to hear and converse with those that have differing views as opposed to trying to convince those differing views.

That’s the challenge for this week.

The best is ahead!

-Matt