Maybe you’ve heard people express fearful thoughts about how and when to invest.
Maybe you’ve even expressed this thought yourself recently:
“I know we are holding too much cash in our portfolio but with the stock market near all-time highs, we are waiting for a dip to invest.”
This thought helps us feel safer. It makes us feel as if we have more control.
But how many consider how big of a drop they are actually waiting for? What if that drop doesn’t happen for another six months or maybe another two years?
We are drawn to stories of people who win. Those who succeed in the face of uncertainty. But too often our fear keeps us from living these stories.
Taking inventory of where you are, optimizing your future strategy and implementing a diligent review process is a great way to tweak some of the fearful behaviors that too often hold us back.
How Fear Can Derail Our Stories
We all have instincts that pull us in the opposite direction from what we should do with our money. But it’s difficult to change the hard-wired stories we’ve always told ourselves.
Stories of how we can’t go through another 50% market decline. Or stories about how we should have invested more in 2002 or 2009 but were too nervous about losing more than we already had.
The most memorable ones are generally punctuated with experiences of lost money from an old investment.
Even in a rising stock market, this can have a profound influence on how we make decisions with our savings going forward. In many cases, our decisions become harder if the outcome we expect to happen does not occur.
Waiting For A Drop
Recently, many people have found themselves struggling with the idea of investing a lump sum of cash savings while markets are at all-time highs.
But for stocks to rise over time, by definition they have to keep setting new highs for a certain period. Josh Brown, who writes The Reformed Broker blog, explains the psychology behind this story, and adds that during 2014, the S&P 500 Index saw 53 new all-time highs.
Then there’s the research studies that have found you are 2/3 better off investing a lump sum vs. dollar cost averaging if you have the choice.
Add in the silent killer to your cash savings (Inflation) and you have a trifecta of data showing that investing a portion of your wealth in equities is warranted at any time.
Our disconnect lies in the stories we’ve heard from others or our own experiences after past market drops when panic won. These feelings paralyze us from investing anything at all. If markets continue to rise, we continue to wait for a drop. If markets begin to fall, we want to wait until things “look better.”
But it’s impossible to participate in the upside without also having times when values decline. So our fear of losses prevents our long-term story from changing.
Instead, our goal should be to rewrite the stories our emotions have led us to believe for so long.
What Story Are You Living?
One of the most fulfilling things we experience as financial advisors is helping clients avoid their emotional impulses. By talking through scenarios and planning for contingencies, the emotional influence wanes and they begin to live different stories.
These stories can show that money is about more than just numbers. Your financial story actually is behind the purpose to your life. It gives you the confidence to make decisions that have a lasting impact in your life and the lives of those you care about most.
I love the way Carl Richards, captures the essence of this idea in his recent article: “How Do You Spend Your Time & Money?”.
The value of your story is in how it shapes us, how we learn from it, and in turn how we grow from it.
So what is your financial story? Are you satisfied how it’s unfolding? Are you moving in the direction you desire?
***Originally published at NerdWallet
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