This graphic, borrowed from Andes Wealth Technology, shows the emotional roller coaster we all experience at some level as the markets go about their ups and downs. The study of Behavioral Finance teaches that the amygdala in our brain (the small almond-shaped gray matter that experiences emotions) serves the same function today as it did thousands of years ago when we were in daily fear for our lives.
When the stock market goes down, our brain sends out chemicals that ignite our fight or flight response. This is a stress response amounting to a shrieking message of “Stop the pain!!”.
It is difficult to manage that level of fear, and most are unable. Investors who can’t manage it may sell out of the market at the wrong time, realizing very sub-par returns. You might even suggest they may be better off not investing at all. Consequently, it is the disciplined, planning-centric investors who are resolved to see it through, who can make a lot of money in the stock market.
One of the most important parts of our job is to help our clients invest with a level of risk they can tolerate. We regularly check in on their current tolerance level, educate them and hold their hand when the proverbial sh–, well you know, hits the fan.
It has been a rough couple of years. A hotly contested and divisive national election, a multi-year life threatening pandemic, unemployment reaching levels not seen since the Great Depression, an inflation spike not seen since the early 80s. Most horrifically the war in Ukraine, featured 24/7 everywhere in our luridly connected world. You can cut the anxiety with a knife.
Rather than my words, I think some words of wisdom from both a living investment legend and a revered political leader might be helpful.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
The only thing we have to fear is fear itself.
Franklin D. Roosevelt
We are happy to discuss your specific situation with you. Please call us at 908-379-2706 to schedule a complimentary consultation. As always, we appreciate the opportunity to assist you in addressing your financial issues.
Westfield Financial Planning (“WFP”) is an independent Registered Investment Adviser (“RIA”) with the Securities Exchange Commission (“SEC”). WFP is a privately owned, independent asset management and wealth advisory firm. Any reference to advisory services refers to WFP. SEC registration does not imply a certain level of skill or training. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The data presented herein has been gathered from sources believed to be reliable, however WFP does not guarantee its accuracy or completeness. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a WFP and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future results.