When someone is frustrated with the stock market, usually, it’s not the stock market that’s the problem. The market has proven to work over time. The truth is, the real problem is you and me. The reason: We mess with our money too much. We act like a car in traffic, making futile attempts to get ahead by constantly switching lanes. A PAX Financial advisor, San Antonio, can help people avoid switching lanes at the wrong time. This can be a pivotal key to success.
Let’s be honest: People are gullible. We hear about two plane crashes in the last month and decide to drive instead of catching a more logical flight. Did the odds change? Nope, but we make the silly assumption that planes are all of a sudden more dangerous and we readjust our decision-making. Experts call this decision-making “availability bias.”
This emotional decision-making is the biggest enemy of successful investing.
Sometimes emotions cause us to make bets on the direction of the market or a sector. Other times we make the unmerited mistake of looking at last year’s winners and shift money their direction. Sometimes we simply rebalance too much.
In full disclosure, the historical returns of the S&P 500 stocks are not certain and past performance is no guarantee of future results. However, as long as people globally are shopping on Amazon, ordering Starbucks, watching another blockbuster, buying toilet paper, exchanging tires and purchasing medicine, then the stock market is likely to trend higher.
The biggest challenge for investors is not the stock market, but rather, messing around with long-term investments because of boredom, hunches or speculation masked in half-truths. Don’t try to outsmart the market. Stick to the plan.
Reacting vs. Responding
When dealing with money and markets, it is critical that you know the difference between a reaction and a response.
A reaction is instant, unconscious and often a defense mechanism. It’s typically based on a feeling. Reactions can result in expensive money mistakes.
A response takes into consideration the well-being of not only you today, but your future self and others around you.
Reacting can be especially dangerous if you’re in, what we like to call, the accumulating phase of your life; the time when you’re working, actively investing money and looking to prepare your future retirement. You’re still a decade or two away from PIVOTing into retirement, but that time is definitely on your radar and you’re making moves to help make your dreams come true.
Those dreams are important to you, so it’s common for “accumulators” to react rather than respond; they want to protect those plans as much as possible.
But here’s the rule of thumb when it comes to your investments:
Don’t jump too early.
Four-and-a-half years (56 months) is the time it generally takes a market cycle to experience an up and a down. Some investors bail when it goes up; others sell when it goes down because of emotions and dramatic headlines. But you want to stick to your plan. Successful investors don’t abandon a strategy without experiencing the results over a full market cycle.
Don’t put all of your eggs in one basket.
Diversification is key to good, smart investing. If you take on too much risk in one sector, it can take a long time to recover if that sector is hit hard. I have yet to meet someone who put all of their money in an undiversified portfolio and timed it perfectly. Diversification cannot assure success or protect against loss in periods of declining values. However, a diversified portfolio is generally a smart one.
Don’t reference high-water marks in your investments every time you look at a statement.
High-water marks are nice, but they should not be a permanent point of reference. Make sure you have a true reference point. And if you have time until you retire, try looking at your investments less frequently. Review your long-term investment plan quarterly. Daily check-ins can lead to high blood pressure.
Don’t assume that everyone else is making money.
The fear of missing out is real. Investors hear their friends making investing moves and they want to jump on the same bandwagon. But that can be a dangerous game. Friends that discuss their investments may not be telling the whole story; people generally don’t like talking about their failures. Talk with a financial advisor instead. You should also remember that oftentimes, when you do make a move, there can be fees, or even worse, negative consequences of giving up on a strategy too early.
When a PAX financial advisor in San Antonio invests, these rules are taken into consideration to help avoid emotional investment decisions. The investing marketplace is filled with noise. Creating rules and principles to guide an investor in smart decision-making is key.
Having a plan in place that considers your goals in retirement can really help limit the stress of market turns. A PAX financial advisor will help ensure you respond and not react!
This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.