Broker Check

Two Reasons Fear is a Terrible Investment Strategy

March 21, 2016
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I've have been working in wealth management for a large portion of my professional life, so I've been privy to the many ups and downs of the markets: oil swings, real estate changes, foreign worries. While there's no denying these events can be stressful and unsettling, I've always remained patient. At the markets' lowest points, I'm reminded of a quote penned many years ago by President Franklin Roosevelt:

"The only limit to our realization of tomorrow will be our doubts of today." 

Since 2012, I've built this independent practice and my clients' wealth management strategies with this philosophy in mind. There's no denying leaving Edward Jones was a risky move in many ways. However, had I let fear of the unknown change my decision, I would have never experienced the freedom and joy my team brings to our clients each and every day. This experience taught me a lot about fear and risk, and many of those principles are applicable to the way we approach investing and wealth management.

The rapid advancement of technology and access to the 24/7 news media has created a sense of unease and instability during down times or periods of slow growth, causing many investors to act as their own worst enemy. If the fear of the future has begun to creep into your investment practices, it's only harming your long-term outlook. Let's investigate two reasons: 

1. Fear Promotes Bad Investor Behavior

I've talked about this many times before, but one of the most vital things we can do as investors is keep an eye on the long-term. Numerous studies have shown it's often more about time in the market than it is about timing the market. Tim Mauer, a financial adviser and author, explains in an article in Forbes

"Even the years that we refer to as the “good” ones [in the stock market], in retrospect, test our mettle. For example, between 1950 and 2014, a span of 65 years, the S&P 500 ended the year with a gain 51 times (or in almost 80% of them). Not bad."

As I've learned during my many years in this business, letting fear of the future guide our daily actions only serves to harm us. Often times, it isn't just our fear of losing money that hurts us the most, but our fear of not gaining. After a few small quarterly or biannual returns, fears about retirement or our family's long-term well-being start to creep into our heads. These fears are quelled by greed, leading us to invest in flavor-of-the-month stocks or funds that don't out-perform the market all that often. 

2. Fear Prevents Us From Taking Necessary Risks

This brings me to the concept of risk. Risk is a necessary part of investing. There are generally both very safe investments and investments that can yield larger returns; however, rarely are those one in the same. While each and every one of us has our own risk tolerance, risk-taking is a necessity for the market to operate in the manner in which it does. Maurer explains further:

"Indeed, the very same elements of investing in the market that test our mettle and inspire doubt also justify our expectations of higher returns over time. It is our willingness to endure disappointing months, quarters and years that makes it possible – and according to the evidence, probable – to earn the higher returns most of us need to meet our financial goals in life."

Though we should never be reckless with our money, assuming some amount of risk is necessary to achieving our goals when it comes to accumulating wealth. Calculated risks lead to rewards, and we always work with all of our clients to determine an appropriate risk-tolerance for their portfolios.

Trusting the Professional

I often give my clients this analogy: 

"I may not like skydiving and you may not either, but we would all feel better about it if we had a professional pack our parachute and guide us all the way down." 

The same is true for investing. Allowing someone to manage your assets can be anxiety-provoking. It's our foothold and our future, and we're entrusting someone else with the well-being of not just ourselves but our families as well, which is exactly why we always advocate for taking the time to find an advisor you trust. Just as our skydiving instructor guides us safely to the ground, a trusted partnership with a certified financial planner will help ensure both you and your loved ones are taken care of for generations to come.

In a market known for its volatility and fickleness, trusting your financial manager is a must. I always tell people to find someone you trust, and let them do their job to take care of you The best financial advisors work along side you, making calculated risks that align to your goals, your values and your comfort levels. I understand the markets can be volatile, and that word alone can instill doubts in the best of us. However, without risk, there's no reward, and without trust, no relationship can succeed. 

John Lindsey is President and CEO of Lindsey & Lindsey Wealth Management. After years of experience in executive leadership and finance, John founded Lindsey & Lindsey Wealth Management in 2012 to better serve his client base with an expanded universe of investment offerings. His biggest piece of advice is to always stay true to yourself and never compromise when that compromise would endanger your principles.