As of March 17, 2020, 179,111 cases of COVID-19 were reported, with the death toll reaching 7,426.1 With the number of infected patients rising every day, it’s nearly impossible to avoid feeling stressed or anxious about the world’s most recent pandemic. Aside from the concerns for our health, the financial toll of the Coronavirus pandemic is evident across the globe. After 11 years as a bull market, the stock market entered a bear market on March 11, 2020, with the market fluctuating in an unstable state since. But as an investor, it’s important to remember what your biggest focus should be right now: your personal economy.
This is an emotional time for everyone, there’s no doubt about it. But one of the greatest dangers to your wealth may not be the market’s dips and dives, it may be the temptation to make emotionally charged decisions regarding your wealth. Below we’re discussing the impact behavioral finance can have on your investments and what you can do about it.
What Is Behavioral Finance?
In a perfect world, the stock market would be predictable. Philosophers and economists have studied the markets for decades, even developing theories and models to explain and predict trends and responses in the market. The problem? Money, and the way we interact with it, isn’t black and white. As humans, we typically cannot make objective decisions regarding our own money. Whether we realize it or not, we are influenced by subconscious biases and, especially in the face of a pandemic, what we read and hear on the news.
This behavioral bias can help account for unexplainable phenomenons in the market, such as the “January effect,” an increase in stock prices that tends to occur at the beginning of the year.
How Behavioral Finance Impacts Your Portfolio
Even the most disciplined investor could be having a tough time staying strong in the current economic climate. With new information about market changes and the spread of COVID-19 flooding social feeds and taking up entire news cycles, no one is immune to hearing about it.
When you hear on the news that the market has plummeted, your first instinct may be to get out immediately. This is a gut reaction, fueled by the short-term fear of a market crash. However, now’s the time to remember the truth about your investments: they’re meant to be a part of your long-term financial goals, not short-term gains.
When in Doubt, Call TCM Wealth Advisors For Fee-Only Fiduciary Advice
To help avoid making impulsive, emotionally charged decisions about your money, take a time out and give us a call at 330-836-7000 so we can help you bring order to financial chaos. The economy is meant to cycle through bull and bear markets, and by utlizing a strategic big picture, goal-based financial planning approach, we can help you stay focused on achieving your lifetime financial goals. As your trusted fee-only financial advisor providing fiduciary advice, we are here to help you and your loved ones successfully navigate through these uncertain and volatile times.
2020 has certainly been off to a rocky start. But as you work to keep your loved ones safe from the spread of COVID-19, remember to keep calm, stay rational and remain informed about your investments as well. We are here to help you stick to your long-term goals, so you should always feel free to reach out with your concerns and questions. Give us a call at 330-836-7000 to schedule an introductory conversation and we'll begin helping you bring order to financial chaos.
Since 2004, TCM Wealth Advisors has been providing Fee-Only Fiduciary Advice to our clients in Northeast Ohio and all across the country.