Stuff About Money: When Our Emotions Make Investing Riskier

So let's start here.

In 1980, the stock market has experienced an average decline of about 14% at some point during the year.

That's 14% intra-year.

So since 1980, on average, every year, the market's dropped about 14% at some point inside of the year.

And yet, that same period, the market finished the year with a positive return roughly three out of four years.

So 75% of the time, even though There was a 14% decline during the year.

The market still finished positive.

Think about that.

That's some pretty significant declines.

And yet most of the years still ended positively.

So if volatility, the ups and downs, is such a normal part of investing, why does it make us so uncomfortable? And more importantly, why do we feel like we need to do something about it? I've been a financial advisor for a long time, and I've come to believe that one of the biggest risks to our financial future isn't necessarily what the stock market does.

It's how we respond to what the stock market does.

And I think that's especially relevant right now.

We've got midterm elections coming up.

There's uncertainty around interest rates, inflation, the economy, and then there's artificial intelligence, inflation.

AI is creating some incredible opportunities, but it's also raising a lot of questions.

How's it going to change the way we work? What happens to jobs? Which companies are going to benefit? Which ones might get left behind? And how much of the excitement surrounding AI is already reflected in stock prices? There's a lot we simply don't know.

And depending on who you're listening to, AI is either going to transform the economy in ways we've never seen before, or we're in the middle of another investment bubble.

Maybe there's some truth in both perspectives.

I don't know, but that's kind of the point.

There's always going to be uncertainty.

There's always going to be something that makes us nervous about investing.

There's always going to be something exciting that makes us wonder whether we're missing out.

So how do we deal with that? At PlanWisely, we've been working on a set of principles to help our clients better understand what they should expect from investing.

And these principles guide us as well as we build portfolios and select portfolio managers to work with.

So let's start here.

In 1980, the stock market has experienced an average decline of about 14% at some point during the year.

That's 14% intra-year.

So since 1980, on average, every year, the market's dropped about 14% at some point inside of the year.

And yet, that same period, the market finished the year with a positive return roughly three out of four years.

So 75% of the time, even though There was a 14% decline during the year.

The market still finished positive.

Think about that.

That's some pretty significant declines.

And yet most of the years still ended positively.

So if volatility, the ups and downs, is such a normal part of investing, why does it make us so uncomfortable? And more importantly, why do we feel like we need to do something about it? I've been a financial advisor for a long time, and I've come to believe that one of the biggest risks to our financial future isn't necessarily what the stock market does.

It's how we respond to what the stock market does.

And I think that's especially relevant right now.

We've got midterm elections coming up.

There's uncertainty around interest rates, inflation, the economy, and then there's artificial intelligence, inflation.

AI is creating some incredible opportunities, but it's also raising a lot of questions.

How's it going to change the way we work? What happens to jobs? Which companies are going to benefit? Which ones might get left behind? And how much of the excitement surrounding AI is already reflected in stock prices? There's a lot we simply don't know.

And depending on who you're listening to, AI is either going to transform the economy in ways we've never seen before, or we're in the middle of another investment bubble.

Maybe there's some truth in both perspectives.

I don't know, but that's kind of the point.

There's always going to be uncertainty.

There's always going to be something that makes us nervous about investing.

There's always going to be something exciting that makes us wonder whether we're missing out.

So how do we deal with that? At PlanWisely, we've been working on a set of principles to help our clients better understand what they should expect from investing.

And these principles guide us as well as we build portfolios and select portfolio managers to work with.