As we face increased uncertainty about our lives, work and the markets, it can be easy to become anxious and fearful. We may face more surprises as we learn to live with the pandemic and figure out how to manage the economy through this. The best way to prepare ourselves and combat feelings of fear and anxiety is to focus on important truths that are constant in our lives, regardless of what goes on around us.
I share with you three important truths with respect to investing. There is a lot we don’t know, but there are several constant truths. And if we focus on those truths, we can be in a better position to make thoughtful and wise financial decisions.
The Media Sensationalizes the News. They need to in order to make money. It’s often urgent (breaking news), it’s about getting us emotional. If they were to deliver news in an unbiased, factual manner, few would tune in. Given this fact, we have to ask ourselves why we even tune in. Yes, it’s good to be informed. But not when the information is skewed and may influence us to make unwise decisions.
Investor Behavior > Investment Knowledge. How you behave and respond to news and market movements have a much greater impact on your wealth than market knowledge. Spend more time thinking about your actions and reactions to market events. Afterall, it is your financial decisions that directly impact your wealth.
Investor Behavior is Predictable. Because thinking and responding are largely habitual practices, investor behavior is quite consistent. Voltaire said, “History never repeats itself, but man always does.” As emotional beings, we overshoot both on the upside and the downside. Our moods and limited views drive most of our decisions – which is why investors often make the wrong decision at the wrong time. Individual investors can improve their investment behavior by learning correct perceptions and following a set of investment rules, but those require effort. We will do that, but the majority of investors will not.
My goal is to be a constant reminder of those things we need to pay attention to, and those things we need to ignore. There is so much noise out there. The anxiety and fear that is permeating our lives is very real. But it need not affect you. Let’s talk about what truths, both personal and financial, you can focus on to get you through this most difficult time. I am here for you.
©2020 The Behavioral Finance Network. Used with permission.