Investing can be a very emotional task, and two of the biggest emotions involved are fear and greed. Fear and greed can make investors sell or buy their investments at wrong times, causing negative impacts on their portfolios. Unfortunately, many financial salespeople may play on these emotions and direct you toward products that are not in your best interest.
How many times have you heard, "we must be headed for a market crash because of .......", or, "the market is at an all time high, it is bound to go down". It seems like every day there are countless media personalities, friends, family, and "financial experts" that are predicting the next market downturn with utmost conviction and certainty. However, we all know that predicting the future with consistency is impossible.
Markets move in cycles. We experience bull markets (upturns), bear markets (downturns), and stagnant markets. As markets are moving through the different cycles, the rhetoric of an impending “crash” can prompt an investor to sell their holdings out of fear of a market drop. Impulsive reactions like this can cause serious implications and potentially hurt financial goals. While we understand these fears, one of our main priorities is to educate our clients on how markets work and how it affects your portfolio. We want our clients to learn what to expect during the different market cycles, the risk and expected return trade-off, and what to do during a bear market.
There are concerns that are real and justified. Common among these include:
-Will I have enough money when I retire?
-Will I be able to fund my children's education?
-If my family experiences an unexpected event, such as a premature death or disability, will we be financially secure?
-Will I be able to fund other longer term financial goals?
Proper planning may help alleviate these concerns by determining your current situation, exposing the areas that need improvement, and learning how to reach your goals efficiently. When working with us, we assist you in making effective decisions in regard to these concerns.
Greed is often related to bull markets, and seems to play into the herd mentality of "everyone seems to be making a fortune on their investments, I want to do that too". In many instances, investors will deviate from their investment goals and reallocate funds based on recent past performance. We call this chasing returns, and like selling investments out of fear, it can have very adverse effects on a portfolio. Financial salespeople readily play into this emotion by discussing the past performance of the investments they are recommending, without an in depth discussion about the risks, costs involved, or how those returns were achieved.
Please remember, PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Chasing returns is akin to picking the winner after the race has already been won.