Financial Updates | Erin Kennedy & Peter Richon | Investing with Your Emotions Can be Costly!

Peter, it's good to see you. Today's topic, emotional investing can be costly. We are, of course, still very much in bear market territory. The market has lost nearly a quarter of its value since the beginning of the year.

And just so you can see what that looks like, this is a look at Finviz. So this is the S&P year to date. Peter, we see all this red. We hear the headlines. You know, we all feel very anxious right now.

Yeah. A lot of red on that chart and a lot of deep losses. If you look at the largest components of the S&P 500, Microsoft, Apple, Google, Amazon, Tesla, I mean, these companies are down 25 to 38% or more year to date. That is a lot of losses in some of the biggest holdings, which by the way, are some of the largest and most commonly held components in many mutual funds. So we are seeing losses across the board here in 2022.

And Aaron, you're right. Money is math. I mean, we can do the math, the addition, the abstract subtraction, the growth, and then find out what the answers are. But money isn't just math.

It is mental, emotional and psychological. And when we see a year like this, when we see that red on the chart year to date, or even day to day, the movement and the volatility of the market can invoke and induce a lot of emotion that more often than not, unfortunately, leads to financial mistakes if they are acted on at the wrong time. And you're popping up a chart here that kind of illustrates the point. A lot of times when the market's going up and doing very well, people are excited, people are thrilled, people are euphoric, and people buy in as the market is kind of reaching those peaks in the top when everybody's saying things are going fantastic. And then as the market retreats and has downturns, people are worry stricken, people are panicked and then sell out right at the wrong time. And I've seen a version of this chart that sort of says, buy here, sell here, repeat until broke is the emotional investing experience.

And it sums it up very well that we tend to do the wrong things at the wrong time. Right. You know, Peter, I wanted to bring this up with you because I know that you are considered a financial expert, even just in your community, of course, but you're not only just with me, but with others as well. So what's the most common question or concern that you're hearing from people right now? From the public right now, it is, will these losses continue? Is the economy on the verge of collapse? Yeah.

And I don't believe it is. I think that in every generation, every decade, really, there's kind of a moment where people are panicked that this could be the end of it all and that things will never recover or be the same. And then life goes on. And we've got to remember that if things were to spiral into that huge eventual collapse, that impacts and affects everyone, including those in power who are making decisions dollars as well.

They're going to do their best not to allow that to happen. But if we, as individuals, make emotional mistakes based on that fear, that impacts just us. And over history, we have seen that those moments where everybody has worried were only temporary, and that the market not only has recovered, but has rebounded well above previous highs, when things do improve and turn around and get better. And so, you know, depending on what our timeframe is, whether we are short term investors, meaning we are in retirement already liquidating accounts to create income, or if we're more a long term investor with 10 or more years of time horizon, that's really going to dictate our approach and be one of the most important considerations for what we should do as individuals in a time like this. I'm glad you bring that up because that is my next question. What we need to be keeping in mind during moments like this, because one of the things you said, consider your time horizon.

What else? Yeah, absolutely. Well, consider conditions as well. This was not an unforeseeable challenging year. And not that we know the future nor can predict the highs or lows, and we should never try to time the market as a long term recurring strategy for success. But if we can capture trends, if we can be maybe a little bit more opportunistic during periods of growth and be a little bit more conservative during periods of drawback, that can actually go a long way to improving our outlook. And that's not the way that the American investor is taught to be. We are taught to do things automatically out of sight, out of mind, and shoot for funds that have outperformed the S&P. Well, if during good times a fund has outperformed the market, then it's more than likely going to outperform the market in bad times as well, making years like this year, all that more impactful for our long term impact. But if we do have a little bit of monitoring, a little bit of rebalancing as we go, and especially in those last five to 10 years of our working career and first five to 10 years of retirement, it can really go a long way in helping us to kind of keep things between the guardrail, so to speak. Maintaining a balanced portfolio that is reflective of our risk tolerance doesn't happen once in our twenties or thirties and then is set it and forget it forever and ever. We have to have ongoing monitoring and sort of babysitting of our portfolio to make that happen. Right.

And then just to kind of underscore the reason that we're having this conversation is because you, again, as the expert, understand that we are fighting against human emotions here. And what often happens when people pull their money out, as you mentioned, they're doing it at the least optimal time. And even if you just try to time the market, take a look at this $10,000 investment. The difference with pulling your money in and out is significant.

Yeah. And some of the best days happen directly after some of the worst days in the market. And the same is true for years. Some of the best performance year over year happen directly after some of the worst performing years. And so if we jump out at the wrong time or jump in at the wrong time, it's about time in the market, not timing the market. Right. We need to have a proactive discipline of just investing as much as possible, as early as possible, as often as possible. And then as long as the portfolio is reflective of our comfort level with risk, both in good times and in bad times, again, maintaining that balance, then we should be pretty confident that we are making long-term financial progress toward our goals. Right. And it's just important to hear that as a reminder, Peter, I appreciate it.

I'm sure everybody else does as well. If somebody's watching this and they have any questions about what's going on with their portfolio right now, Oregon, just want to talk through their anxiety. What's the best way to reach you?

Yeah. Give us a call at Roshan Planning. Love to talk through any concerns that you're having. 919-300-5886-919-300-5886. You can email me Peter at RoshanPlanning.com. Visit online RoshanPlanning.com. It looks like rich on planning.com.

It's my last name. And we do offer a complimentary review and analysis. A big part of that is the risk analysis, helping you understand the current risk of your current portfolio and then comparing that with the risk tolerance that we are able to help you to identify you specifically have and then just making sure that the two match. Sometimes they are very, very different. The risk in the portfolio versus what we are comfortable taking should be pretty close to alignment in order for us to feel comfortable in our financial progress. Exactly. Sleeping at night is very important. Peter, thank you very much.

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