Good morning & happy Monday!
I am not a product of my circumstances. I am a product of my decisions.
Stephen Covey, author (most famous for “The 7 Habits of Highly Effective People”)
This morning I would like to spend a few minutes addressing something that I talk about frequently in my meetings, but I don’t believe I have addressed in these weekly communications … How we make decisions.
We can make decisions with our head – based on facts.
Or
We can make decisions with our hearts – based on feelings.
I know there are some of us that make decisions primarily with our head (“The facts dictate that I should …”) and there are some of us who make decisions based more on our heart (“I strongly feel that _____ is going to happen so I have decided to …”) and then there are most of us who are in the middle somewhere … a balance of head and heart decisions.
As human beings, we all have emotions. It’s how God wired us and it’s a beautiful thing. God also gave us all a brain to make educated decisions with, also a beautiful thing. But … what happens when these two do not agree?
In the investing world, this happens all the time. We can use the current market pullback as an example.
From January 1, 2022 – May 6, 2022 the S&P 500 is down 13.5% (source: IFP Market Chartbook dated 5/9/2022). Many asset classes are down even more than that.
In times like this, our hearts might be yelling something along the lines of “oh my gosh, I’m losing my life savings before my very eyes … we have to make it stop.”
At the exact same time, our heads will probably be trying to rationalize the events by saying something like “I know the market goes up & down, drops like this create opportunities, I’m a long-term investor so temporary pull backs are not the end of the world”
Which voice wins that debate within ourselves? That will likely determine if we are successful in our investing lives.
I was recently at a social event with my wife and we were talking to a group of her friends. Something came up about emotions and I made a statement that “I am 95% head, 5% heart.” My wife looked at me and said “I see you are rounding up on the heart percentage.” She was not insulting me, she was just speaking the truth 😊 … I am a non-emotional, very logical thinker. It’s how I’m wired. There are plenty of times that is not an advantage, but in investing I believe it is a tremendous advantage.
When the market pulls back, I do not get emotional. I don’t get upset, I don’t get angry, I don’t get worried … I get optimistic. I believe that market pullbacks create opportunities, so I embrace these down markets because there are strategies that can work well in these types of markets.
3 main ideas that I look to potentially implement for clients in times like this:
- Adding funds – investors can buy now and get more shares for their money than they were able to before the pullback.
- Portfolio reallocation – moving funds from more conservative assets to more aggressive assets – this allows for us to purchase aggressive assets at decreased prices
- Roth conversions – moving traditional IRA dollars over to Roth IRA dollars – this allows investors to pay less for a tax conversion than they were able to do before the pullback
Each of these strategies is very individual, and each one requires evaluation, so please understand these are not blanket recommendations. But, nevertheless, being optimistic in times like this is far superior to panic.
My friends, times like this are all part of the investing journey. Volatility is THE reason why equities (stocks) have exceeded other more conservative asset classes (bonds, fixed annuities, CDs, etc.) on a long-term basis. At minimum, ignore it. Ideally, embrace it.
We will continue to use a data-driven investment approach that focuses on your goals and your long-term objectives. Stay the course, this too shall pass 😊
Please do not hesitate to reach out if you have any questions or would like to explore ways to be opportunistic in this market.
It is a joy and an honor to serve you & your family.