Carl Richards
Financial planner and author of The Behavior Gap
Born 1972
Uses simple sketches to explain the gap between what investments return and what investors actually earn.
Biography
Carl Richards is an American certified financial planner and author, born in 1972, best known for explaining investing ideas as hand-drawn sketches. The device is not decoration: reducing an idea to two labelled axes forces it to be simple enough to act on, which is the point of most of his work.
His central subject is the behaviour gap, the difference between the return an investment produces and the return an investor actually receives. The gap opens because people tend to add money after a period of good performance and remove it after a bad one, so the timing of their decisions costs them part of what the investment itself delivered.
He wrote The Behavior Gap in 2012 and drew the Sketch Guy column for the New York Times for a decade. His audience is largely people who already understand the basic mechanics and keep undermining themselves anyway, which is a different problem from not knowing what an index fund is.
Career timeline
- 1972Born in the United States.
- 2010Begins the Sketch Guy column for the New York Times.
- 2012Publishes The Behavior Gap.
- 2015Publishes The One-Page Financial Plan.
How he frames financial decisions
Richards works from the position that most investors do not fail for lack of information. The gap between knowing that selling in a downturn is usually costly and not selling in an actual downturn is where the money is lost, and closing it is a question of behaviour and of having decided in advance.
The sketches follow from that. A diagram that fits on a napkin can be recalled during a falling market, which is exactly when a spreadsheet cannot be. He has been explicit that simplicity here is a functional requirement rather than a stylistic preference.
Key ideas
Tap any idea to expand a plain-English explanation, why it matters, and where to learn more.
The behaviour gap
The difference between what an investment returns and what its investors actually earn, created by when they buy and sell.
It means an investor can hold a perfectly reasonable fund and still trail it, purely through the timing of their own decisions.
Money that arrives after a strong run and leaves after a fall captures less than the fund itself delivered.
Risk is what is left over
Real risk is the part you did not think of, not the part you measured.
It argues for building a plan that survives being wrong rather than one optimised for an expected case.
A plan that assumes an uninterrupted income has not accounted for the interruption.
Decide before you are tested
Write the plan down while markets are calm, because the decision made during a fall is a different decision.
It converts a moment of judgment into a moment of following something already agreed.
A written rebalancing rule executes during a downturn without needing a fresh opinion.
Major contributions
- Popularised the behaviour gap as a way of describing the cost of investor timing decisions.
- Wrote and drew the Sketch Guy column for the New York Times for roughly a decade.
- Published The Behavior Gap and The One-Page Financial Plan, both aimed at simplifying financial decision making.
Important books
- The Behavior Gap2012
The book-length treatment of why investors trail their own investments, illustrated with the sketches the work is known for.
- The One-Page Financial Plan2015
A short book arguing that a usable plan should fit on a single page and start from why the money matters.
Influence on investors
The phrase behaviour gap entered common use among financial advisers and writers as shorthand for the difference between investment return and investor return, and the sketch format has been widely imitated.
Criticisms and debates
A balanced view includes the main criticisms and open debates, presented neutrally.
- The sketches simplify by design, and critics argue some topics lose necessary detail at that level of compression.
- Estimates of the size of the behaviour gap vary considerably depending on method, and some studies find it smaller than commonly quoted.
- The advice is aimed at investors who already have a reasonable plan, and addresses less about what that plan should contain.
Lessons for investors
Plain-English takeaways. Context for learning, not advice to buy or sell anything.
- 1Assume the gap between your investments and your returns is your own timing, and plan around it.
- 2Write the plan down while markets are calm so the falling market only requires following it.
- 3Treat the risk you have not thought of as the one that matters.
Notable quotes
“The behaviour gap is the difference between what we should do and what we actually do.”
“Risk is what is left over when you think you have thought of everything.”
Frequently asked questions
Who is Carl Richards?
Carl Richards is an American certified financial planner and author born in 1972, known for explaining financial ideas as simple sketches and for the book The Behavior Gap.
What did Carl Richards mean by the behaviour gap?
The difference between the return an investment produces and the return its investors actually receive, caused by adding and removing money at unhelpful times. He named and popularised the term.
Why sketches?
Because an idea simple enough to draw on a napkin can be recalled during a falling market, which is when more elaborate reasoning tends to be unavailable.
Who is his work for?
Mostly people who already understand the mechanics and still act against their own plans. It addresses behaviour rather than product selection, and it is education rather than advice.
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Educational content only. This is a neutral summary compiled for learning. It is not an endorsement, not investment advice, and not a claim that this person is always right. Mentioning someone here does not imply they are affiliated with Money Masters Media.