Investors and Soccer Moms are Alike
Sports can be emotional. When I used to watch San Diego Chargers games, I’ll admit my mood swung with the ebbs and flows of the game. It’s difficult not to get caught up! I coach a competitive youth girls’ soccer team. While it may not be the same level as the NFL, the emotions of soccer moms, dads and coaches inevitably rise and fall with changes to the score. Down the road no one is going to care who won that game and the girls’ personal development is far more important than wins and losses (and most rational people know that). While we may see or hear about the parent that goes off the deep end, thankfully, it’s not the norm. Most can overcome the emotion and act rationally.
The emotion of investing is not much different. In the ebb and flow of investing, when the market is up, people are generally feeling good. Confidence is rising and they’re willing to take on more risk. However, this is a miscalculation driven by emotion based on one or more of the following:
1. They think it will always be this way.
2. They are doing well but not as well as Amazon or Apple stock, or Bitcoin, or Fill-In-The-Blank, so they want to do better.
3. They forget what it feels like to see their investments decrease in value.
4. They think they can get out before the market goes down.
But, like the soccer mom who needs to unhinge reaction from emotions, I would encourage you to take an objective look before making changes. Consider:
1. Markets rise and fall and rise and… You get the idea. Be prepared to experience both. Over time investing works because the aggregation of increases is greater than the collective downturns. If anything, consider going against the grain of emotion. Warren Buffet’s advice is worth considering, “Be fearful when others are greedy and greedy when others are fearful.”
2. If you want to be a stock-picker or speculator, go for it, but if you are a diversified, long-term investor, don’t kick yourself in hindsight. There will always be something you missed out on or didn’t own enough of. Michael Kitces consistently reminds us, “Diversification means always having to say you’re sorry.”
3. Everyone responds differently to downturns, but generally, losses are more emotionally draining than the corresponding emotional excitement of gains. Psychologists have shown losing is psychologically about twice as powerful as gaining, dubbing the term loss aversion!
4. Trying to time the market to get out (or expecting your financial advisor to do so) is a fool’s game. Ben Carlson said in his recent Bloomberg article, “Diversification is the way investors can reduce risk by admitting they don’t know what’s going to happen in the future.”
Should you be a more aggressive investor now? That’s for you to figure out, but take a breath and be as objective as possible in your choices.
Anthony Saffer, CFP of One Degree Advisors, Inc. helps people who are committed to connecting plans for their finances, family, and future. Learn more at: onedegreeadvisors.com.
Advisory services offered through One Degree Advisors, Inc. Securities offered through Securities America, Inc., Member FINRA/SIPC. One Degree Advisors and Securities America are separate companies.
