Don't Let Fear Drive Investment Decisions
Edward Jones - Chad Choate, AAMS
Feb 13, 2023
Email US
Click to Email Us
In the past year, we’ve seen some big swings in the financial markets. This volatility may make you feel as if you have little control over your investment success. But the truth is, you do have more control than you might think — as long as you don’t let fear guide your
decisions.
Investment-related fear can manifest
itself in a few different ways:
• Fear of loss –
Some investors may emphasize avoiding losses more than achieving gains. Consequently, they might build portfolios they consider very low in risk, possibly containing a high percentage of certificates of deposit (CDs) and U.S. Treasury securities. Yet, a highly conservative approach carries its own risk — the risk of not achieving enough growth to stay ahead of inflation, much less meet long-term goals such as a comfortable retirement. To reach these goals, you’ll want to construct a diversified portfolio containing different types of assets and investments — each of which may perform differently at different times. Your objective shouldn’t be to avoid all risk — which is impossible — but to create an investment strategy that accommodates your personal risk tolerance
and time horizon.
• Fear of
missing out – You’re probably familiar with the term “herd mentality” — the idea that people will follow the lead of others for fear of missing out on something. This behavior is responsible for fads or the sudden emergence of “hot” products, and it’s also relevant to investing. In fact, herd mentality may contribute to sharp jumps in the financial markets as investors drive up prices by buying stocks to avoid being left behind. And the same may be true in reverse — when the market starts dropping, skittish investors may accelerate the decline by selling stocks so they, too, can get out before it’s too late. Buying or selling investments should be considered as needed to help advance your long-term financial strategy — not in response to what others are doing.
• Fear of the unknown – Some investors
fall victim to “familiarity bias” — the tendency to invest only in what they know, such as local or domestic companies. But this behavior can lead to under-diversified portfolios. If your portfolio is dominated by just a few investments, and these investments are fairly similar to each other, you could experience some losses when the inevitable market downturn occurs. To help reduce the impact of market volatility, it’s a good idea to spread your investment dollars across large and small companies in a range of industries
and geographical regions. And that’s just on the equities side — it’s also wise to consider further diversifying your portfolio by owning bonds and government securities. (Keep in mind, though, that diversification can’t guarantee profits or protect against all losses.)
• Fear of
admitting failure – Some individuals don’t like to admit when they’ve been wrong about something, and they may continue the same failed activities, hoping for eventual success. This behavior can be costly in the investment arena. Sometimes, a particular investment, or even an investment strategy, just doesn’t work out, but an investor is determined to stick with it — even if it ultimately means considerable financial loss. Don’t let his happen to you — if it becomes apparent you need to change your investment approach, move on to something better.
Fear can hold
us back in many walks of life — but don’t let it keep you from making appropriate investment moves.
Chad Choate III, AAMS
Financial Advisor | Edward Jones
828 3rd Ave W
Bradenton, FL 34205
941-462-2445 [email protected]
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones, Member SIPC
Other Articles You May Like
Assets Under Management Strategies in Lancaster, PA
As you amass assets during the course of a lifetime, its easy to forget about how much you have and what its worth. Art in the attic, classic cars in storage, retirement accounts across multiple employers: if youre not aware of it all, your portfolio can lose value quickly. A financial advisor who offers assets under management services does so to protect your portfolio from the inevitable changes that your assets can undergo over time.Assets Under Management Strategies in Lancaster, Pa.The first asset you acquire in life, whether its a beatup car or a few shares of a brandnew company, is usually a gamechanging event. Its the first step on what is hopefully a journey toward a lucrative portfolio. Leveraging your assets to build your wealth is more than just financial jargon, its a path that can increase your wealth over time, so you can accomplish everything on your list.A financial advisor at a boutique retirement firm can take the time to get to know who you are and how you invest. At Bodnar Financial Group, Len Bodnar, RICP (R), is there to help his clients get a handle on their assets, so he can help you strategize them for better margins.For instance, a failing asset may need to be either sold or converted, depending on details behind the investment. A middlerange asset may need to be adjusted to optimize its performance. Finally, your strongest assets may need to be carefully watched, so a financial advisor can capitalize during the best of times and protect your wealth if and when it bottoms out.Theres a lot to be said for how assets change while you own them, and its not always easy to know when to cut and run from a property or when to stick with it. If you dont have the time or the inclination to spend on managing it all, the right financial advisor can help mitigate the stress. Its just one less thing to worry about as you get closer to your last day on the job.
Why Efficient Tax Planning is Critical in Lancaster, PA
Most people think that theyre managing their taxes as well as they can, regardless of whether they opt for the standard deduction, hire a CPA every year, or painstakingly comb through every line item. The reality is that no matter how you file, youre likely missing a few opportunities. When it comes to efficient tax management, its more than knowing every nuance of the local, state, and federal tax codes. Why Efficient Tax Planning is Critical in Lancaster, Pa Efficient tax management is a financial concept that shines a light on your portfolio in relationship to your larger retirement goals. A financial advisor will be able to see your taxes from every angle, which can help them make more lucrative decisions for your longterm future. For instance, if your capital gain taxes for next year are going to eat into your investment opportunities, your advisor may recommend deferring the taxes so you can maximize your returns. Even though you will have to pay the taxes at some point, the overall margins will be improved by the financial advisors plans. A financial advisor at a boutique retirement firm doesnt just know your investment strategies. In other words, theyre aware of more than just your personal relationship with risk and if you prefer to invest in the market or in real estate. At Bodnar Financial Group, you get to work with an expert who takes the time to find smarter strategies for you. When so much of your income goes to taxes, you have to ask yourself when you can use the tax codes to your advantage. The right professional can make a major difference to your bottom line, and this is true no matter how you envision yourself spending your golden years. Even those who have little more than a few modest demands for themselves may find that they want to support a specific charity or fund their grandchildrens college years. At Bodnar, you get all the guidance you need to achieve your goals.
Planning Your Retirement Income
If youre asking a friend, how much do I need to retire?, its likely because theres no definitive answer. If youve saved $1 million, it will give you an annual income of somewhere between $40,000 and $50,000. This may be more than enough to cover your needs, but it doesnt always account for the worst of emergencies.Retirement income is a way to safeguard yourself by generating more income per month than you spend. If you work with the right financial advisor, youll get all the advice you need to start making smart moves to get your finances on solid ground long before you officially hang up your hat at work.Planning Your Retirement IncomeThe question of how to plan your retirement income comes down to what you personally want from your golden years. The goal of retirement income is to replace your annual paycheck from revenue sources like Social Security, pensions, or rental checks from properties you own. You might even want to take a parttime job in an industry youve always had a passion for, such as a guitar teacher at a music store or a pourer at a craft brewery.At Bodnar Financial Group, a boutique retirement firm, Len Bodnar, RICP (R), can tell you more about what makes the most sense for your financial years. Whether youd prefer to tie up most of your assets in real estate or the market, he can tell you more about which income strategies will have the best impact on your bottom line. For instance, you may want to rollover your retirement accounts to consolidate them, so its easier to see how much youll need to hit your target monthly income. Regardless of your retirement age, working with an advisor can help you understand more about how youll manage your finances during your golden years. The right expert can also give you a comfortable enough margin to achieve other dreams you might have entertained, such as paying for your descendants masters degree or traveling the world.