Education, Emotions, and Investing
Having been a teacher for 11 years has truly been the best value add to my current profession as a financial planner. The tools and strategies I learned and then implemented to help students of varying needs and levels have been invaluable.
Fast forward seven years from the traditional classroom and my current “classroom” is no different. I have clients of different needs and levels who require education to help them make the best choices at the most critical times as they work to achieve their financial vision. It requires understanding their emotional connection to their savings, meeting them at their current level, and educating them from there so they are better investors, especially in times of market uncertainty.
To help manage the emotional side of investing, I have three basic concepts that I begin to teach immediately when onboarding a new client.
First, we have to understand that it is easy to tell a client that selling investments to protect against losses may hurt them more than help, but the underlying “why” is usually lost in translation and industry jargon. At the core, our clients’ assets represent hours they spent working, loss of a loved one, divorce, a once-in-a-lifetime blessing, sale of a business, and other scenarios that now attach emotional ties to those savings.
- The worst day in the market is usually followed by some of the best recovery days. If an investor misses those best days, it could mean a potential loss of thousands in their portfolios when the markets have fully recovered.
- Time in the market greatly reduces the risk to your portfolio if you have quality investments. Over a period of five years, the probability of incurring a loss falls from 23% to 4%. If we allow it to go longer, the risk is further reduced.
- A portfolio can only grow in two ways: Capital appreciation (the rise in an investment’s market price) and income payments into the portfolio. Dividend payments buy more shares when the portfolio value is down rather than when it is up, making corrections and downturns valuable in the long run. Those additional shares can go a long way to add more value to your portfolio when the markets recover and continue to rise.
Lack of education along with emotional decision making in our portfolios can mean the difference between having papercuts and having scars. Each day we see a drop in our portfolios, it will sting just like a papercut. They hurt and we don’t like them, however, papercuts heal and you never knew they were there. Selling at bad times will turn those papercuts into permanent scars and they will never fully heal.
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Black Lab Financial Services
882 Riveria Drive NE
Palm Bay, FL 32905
321-987-0138
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