Life after divorce can initially feel difficult to navigate. There are a plethora of emotional and financial implications. You may be facing difficult choices such as whether or not you should consider downsizi...
Positive Strategies for Coping with Fear and Greed so your Finances aren’t AffectedAugust 27, 2015 - Financial Articles
By Lance Drucker, a WP Diamond Independent Contributor
One of the Wall Street’s infamous sayings is “financial markets are driven by two powerful emotions—greed and fear.” When we let ourselves be crippled by either, it can affect our health, relationships and hard-earned bottom line. Here we analyze fear and greed, considering how to win them over with confident outcomes.
Fear is an emotional factor that causes one to make the biggest financial mistakes because when stock markets, real estate, or bonds are rising, people fear missing out on opportunities, investing all their money at the wrong time. But when stock markets, real estate, or bonds are declining, people fear losing everything and pull out at the wrong time, which causes loss of money invested.
Typically during stressful and emotional times in our lives, the fear gene can overwhelm us and cause us to make decisions we never would have during our calmer moments. Jane and Paul Johnson showed up in my office with $1 million in cash to invest—but they were stuck. They had sold large positions in a dozen different stocks after the market started coasting downwards at the end of 2007. They had lost 10 percent of value from the market highs, but had “rescued” the $1 million they had come to me, with and were hoping to use as a base for retirement income. “We never got back in,” Paul lamented, when he and Jane first came to see me. “We saved ourselves from the loss, but we never got the upside.” The couple knew the stock markets began to slowly recover in 2009, but they could not bring themselves to re-invest. Discussions about what to buy and when added additional stress to their already fractured relationship.
The danger in fear is that it can be paralyzing. The downward spiral starts with not letting it go. Although it is true that a little bit of fear can be good, and can drive someone to motivate or better themselves, a large amount of fear can cause depression, high blood pressure and other physical ailments. Very real physical reactions drive people into overthinking their decision-making, leading to bad decisions, especially when it comes to money. In finance, letting go of fear is very important. Jane and Paul could have let go, reinvesting and benefiting with more savings for retirement. Fear can also cripple by holding us back from selling unused assets, such as trading in jewelry or luxury watches. Ultimately, selling such items can be very beneficial, particularly when the item themselves are not being valued, providing a cushion for savings. Having the cushion helps alleviate the fear and stress, and should be made firstly with untapped assets.
Strategy: Educate yourself without overthinking
Fighting your inner demons is easier said than done, but it isn’t impossible to achieve. Gather the facts and figures regarding options, investments, history and possibilities. Speak to financial experts, research online, and go into decision-making as well informed as possible.
On the flip side of the same coin, don’t overthink it. Overthinking is a natural reaction when facing fear, but it is not a productive one. Overthinking leads to fear taking over, and inaction as opposed to action. Information and knowledge is power, and it is best to educate oneself, then follow your enlightened gut instinct.
After fear, the second mistake that can emerge is succumbing to greed. Divorcees in particular are at a vulnerable point in their lives, and may make hasty decisions to regain their financial security. These hasty decisions can be tied to greed, which causes loss of natural investment and financial inhibitions when times are good and the market is rallying. Greed also prevents people from taking part of their profits off the table to set aside as a cushion. It makes them want to outperform neighbors, even if they are day trading micro-cap tech stocks on margin.
As with fear, the “get rich quick” mentality can become an obsession. It can lead to people jumping around with investments as opposed to sticking to a long-term plan.
Strategy: Refocus on Hope and Commitment
Instead of over-focusing on greed and profit, combine your personal beliefs and the credence of potential. What is personally satisfying to you? What do you feel good about investing in? In what areas would you like to give back? In life, everything is a balance, and financial reward often arises from giving back within a long-term plan. Maybe it is time to consider setting up a trust for children to relieve estate tax burden, donate assets to a charitable institution, or simply invest a little in an up-and-coming field that you personally connect to.
Refocusing from fear to knowledge and from greed to hope and commitment will open new financial possibilities, and most importantly relieve the stress and anxiety that comes from worrying about negative influences.
Registered Representative & Securities & Investment Advisory Services offered through Hornor, Townsend and Kent, Inc. (HTK) Registered Investment Advisor, Member FINRA/ SIPC (212) 697-1355. Drucker Wealth Management is Independent of HTK.
“Jane and Paul” is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment strategy or combination of investment strategy. Past performance is no guarantee of future results. Actual results can vary. The information provided is for educational purposes only and does not constitute a recommendation of the suitability of any investment strategy for a particular investor. The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other financial professionals.