Your Money Matters: The Uncertainty Paradox – Part II
The Uncertainty Paradox — Doubt is not a pleasant condition, but certainty is an absurd one. —Voltaire
By Jeremiah Pizana, Exclusive to Corridor News
‘In the first article, we considered the concept of uncertainty and how that is “inherent and ever-present” when investing. Now we will expand how to manage our natural tendency to overact and staying put.
MANAGING EMOTIONS
While the statement “the market hates uncertainty” may not be totally logical, it doesn’t mean it lacks educational value. Thinking about what the statement is expressing allows us to gain insight into the mindset of individuals.
The statement attempts to personify the market by ascribing the very real nervousness and fear felt by some investors when volatility increases.
It is recognition of the fact that when markets go up and down, many investors struggle to separate their emotions from their investments.
It ultimately tells us that for many an investor, regardless of whether markets are reaching new highs or declining, changes in market prices can be a source of anxiety. During these periods, it may not feel like a good time to invest.
Only with the benefit of hindsight do we feel as if we know whether any time period was a good one to be invested. Unfortunately, while the past may be prologue, the future will forever remain uncertain.
STAYING IN YOUR SEAT
In a recent interview, David Booth* was asked about what it means to be a long-term investor:
“People often ask the question, ‘How long do I have to wait for an investment strategy to pay off? How long do I have to wait so I’m confident that stocks will have a higher return than money market funds, or have a positive return?’ And my answer is it’s at least one year longer than you’re willing to give. There is no magic number. Risk is always there.”
Part of being able to stay unemotional during periods when it feels like uncertainty has increased is having an appropriate asset allocation that is in line with an investor’s willingness and ability to bear risk.
It also helps to remember that, during what feels like good times and bad, one wouldn’t expect to earn a higher return without taking on some form of risk.
While a decline in markets may not feel good, having a portfolio you are comfortable with, understanding that uncertainty is part of investing, and sticking to a plan that is agreed upon in advance and reviewed on a regular basis can help keep investors from reacting emotionally. This may ultimately lead to a better investment experience.
If any questions arise from reading this article, please feel free to reach out. My firm offers a holistic financial planning approach and investment management services for its clients.
Jeremiah Pizana is a financial planner who owns LibertyCrown Financial located in San Marcos, Texas and is an exclusive contributor to Corridor News. LibertyCrown Financial was founded with the distinct purpose of providing clients with the resources necessary to pursue a life of financial independence and prosperity. Jeremiah is an exclusive contributor to Corridor News and you can read additional columns from Jeremiah under our Business Section.
Source: Dimensional Fund Advisors LP. *David Booth, Founder and Executive Chairman, Dimensional Fund Advisors LP There is no guarantee investment strategies will be successful. Diversification does not eliminate the risk of market loss. All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products or services.
Securities and advisory services offered through Royal Alliance Associates, Inc., member FINRA/SIPC and a registered investment advisor. LibertyCrown Financial is a marketing name. Certain insurance offered through Jeremiah Pizana is independent of Royal Alliance Associates, Inc.
