FINANCES, INVESTING

When Good Markets Go Bad

Joseph A. Davis, CDFA®

May 16, 2017

History tells us the markets will cycle down again eventually; we just don’t know exactly when. When that downturn comes, a financial plan (the big picture), an investment strategy (how you get to the big picture) and a trusted financial advisor can make the difference between staying the course and bailing out too soon.

Not surprisingly, researchers have found that the human brain wants to be happy and will, in fact, bend our perceptions of reality to that end. Faced with evidence that we have made a mistake in judgment, our brain denies, rationalizes, blames and defends, because admitting mistakes damages our self esteem and makes us unhappy.

Faced with investment decisions, our brain goes looking for ways to support its quest for happiness. We envelope ourselves with information – from the media, from the stock ticker, from cocktail party conversations – and gain a sense of satisfaction that we have superior knowledge. We don’t. We have a glut of information.

“We know markets will cycle – we just don’t know when. Having professional advice and an investment plan can keep emotions in check when panic and confusion threaten.”

That false sense of knowledge may lead us to make an investment based on past performance – despite prospectus disclaimers warning us that past performance does not guarantee future gain. We buy what’s popular – because our brain tells us that many people can’t be wrong. We resist selling investments when performance indicates we should – because we don’t want to admit we were wrong. And we invest in stocks simply because we recognize the name or, worse yet, because we work for the company.

If you’ve fallen victim to these financial foibles in the past, now is the time to evaluate your financial strategy. That starts with a financial professional you can trust to be a sounding board – maybe even the voice of reason – when you start to panic about your portfolio. That trusted advisor should be helping you develop a financial plan that starts with determining your life goals, not just a target amount for your investments. Be upfront about your assets, your liabilities, your hopes and your fears so your advisor gets a comprehensive picture of what you hope to accomplish.

“Understand what criteria or scenario should prompt you to sell an investment, hold it or buy more.”

To implement your plan, you need an investment strategy that fits your time frame, money needs and risk tolerance. With your financial professional, determine which investment vehicles are most suitable to your profile. That includes understanding what criteria or scenario should prompt you to sell an investment, hold it or buy more.

When the inevitable happens, and the markets retreat, don’t look to the media, your friends or even the major indexes for your next move. Look to the financial plan and investment strategy you and your financial professional developed and evaluate if those should change in the current climate. Good markets will always eventually go bad. With preparation, planning and professional financial counsel, that doesn’t have to be true of your portfolio.

Want new articles straight to your inbox?

Continue Reading...

Retirement Planning – 5 Reasons Why You’ll Never Retire

When I ask people how they envision their retirement, especially younger individuals, they struggle with that question. Envisioning retirement can be different for a lot of people. For me, I absolutely love every minute of what I do. I cannot see myself retiring completely, at least not at this point.

read more

Three Steps to Achieve Financial Independence

What’s worse is that eight years after 2026, in 2034, social security is slated to become insolvent. Unless, of course, the government makes another announcement and tells us that the cheese has moved again, and we will be less secure than we thought we were even just a year ago.

read more

5 Favorite Passive Income Ideas

Do you know what I fear more than losing money? I’m afraid of lying in my bed when I’m 85 years old, staring at the ceiling in my rest home & asking, “Why? Why did I not even try?”  I would be willing to lose everything 1000 times over rather than have that happen to me. How about you?

read more
Davis Financial LLC

A fee-based financial planning firm servicing Ogden, Utah. We strive to understand your goals, help you manage your retirement planning, guide your overall wealth strategy and help minimize your tax liability through a long-term and trustworthy relationship.

Get in Touch

Office Hours: M-F, 9am-5pm
Call Us: (801) 620-0586
Directions: Map It

Copyright © 2018 Davis Financial. All Rights Reserved. Site by Jolly Creative Agency.

This site is published for residents of the United States and is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security or product that may be referenced herein. Persons mentioned on this website may only offer services and transact business and/or respond to inquiries in states or jurisdictions in which they have been properly registered or are exempt from registration. Not all products and services referenced on this site are available in every state, jurisdiction or from every person listed.

Securities offered through Securities America, Inc., Member FINRA/SIPC. Joseph Davis, Registered Representative. Tax services provided by Tax Smart Pros. Advisory services offered by Beam Asset Management. Joseph Davis, Investment Advisor Representative. Davis Financial LLC, Beam Asset Management, Tax Smart Pros, Fit Divorce Planning and Securities America, Inc. are separate, unaffiliated entities. CA Insurance Lic. #0I00447.