Here’s our third post on what was to be a two-part series.
We’re going to cover the cure for the afflictions identified by speakers at a Webinar we summarized in earlier posts. The Webinar was sponsored by Wells Fargo Bank and aimed at financial advisors, who seem to be attached to mutual funds, which, as long-time readers of IFO know, we do not like.
Nevertheless, we can look at ourselves as our own clients, and view the mindsets of the types of “tough clients” they were talking about:
1. Fixated on the past. “X happened, so I don’t EVER want to do THAT again!”
2. Uncertain, scared. “Oh, gosh. I just don’t know what to do. How can I decide?”
3. Resistant to change. “I’m happy where I am. Don’t want to make any changes to my current holdings.”
4. Over-reacting. “OMG! The market went down X points! Sell!” Alternatively, of course, “The market is going up! Quick buy everything you can!”
5. Attached to cash. “I just feel safer with cash. I don’t want to buy any (more) investment products.”
Numbers 2 and 3 are more common to women, who are naturally conservative and, as they age, somewhat timid. Not many are attached to cash these days. They may be conservative, but they know what is going on with interest rates. Numbers 1 and 4 are more likely to be those of men – action-oriented doers (even negatively, as in number 1).
Here are the advisors’ somewhat humorous fixes for these folks:
1. For the client expecting a financial catastrophe because s/he already experienced one, ask the client (yourself),
“Have you ever been on a bad date? Or have you been on an airplane that had a hard landing? Did you then decide never to date or fly again?
Well, there you are. You know, logically and based on history, that these things do happen, but you recover and go on to do those things again. Markets also recover and usually go on to reach new heights.”
2. The fix for this and the other mindsets which essentially freeze you into not acting is to take a rational and logical view of what you are doing.
a. Devise a specific investment plan for and by yourself.
b. Decide what criteria you will use to buy or sell a stock?
c. Write them down and review them and your holdings a few times a year.
3. Ignore market moves. A famous investment guy once said, “A trend in motion will continue… until it changes.”
4. Observe the “safety first” principle. Have enough cash on hand and money invested that you won’t mind big dips. These numbers will change. Write down what aspects of the market and the economy will cause YOU to change those numbers.
5. If you are still battling one or more of those negative and unhelpful mindsets listed above, do a reality check on your own reactions. What did you do the last time this happened? How did it work for you? And especially for mindset number 4, look back and see what would have happened if you hadn’t panicked.
6. Once you think you have made up your mind and come to a decision, WAIT one day. As the advisors put it, and this is good advice for LIFE, “Don’t hit Send right away.”
Or as IFO’s sainted GFIL used to say, “Sleep on every decision you are about to make.”