How Well Do You Handle Financial Uncertainty?
Uncertainty is uncomfortable and as an investor it helps to be introspective about how much uncertainty you can actually put up with.
Top Tips for Managing Financial Uncertainty
Be Disciplined in Spending and Saving
In times of greater uncertainty, discipline matters. You might think you can handle significant volatility and uncertainty, but is that really true? How well did you deal with uncertainty in the past? Do you think you might respond differently in the future?
Best selling author Morgan Housel says “markets are a window into human behavior.”
Markets go up and down as investor behavior ranges from fear to greed and back again.
Don’t Try to Predict the Future
No matter how hard you try, you can’t totally eliminate uncertainty. Investing is oriented toward future returns and the future is filled with uncertainty. Professor Ken French says ,”your goal should be a portfolio that you can justify to yourself today, based on the information available now.”
As an informed investor you want to make good decisions based on what you know at the time.
Take the Good With the Bad
If you invest for a long enough timeframe you’re likely to encounter both good times and bad. Often investors make money decisions from an opportunistic mindset. Yet, when a rough period ensues, a survival mindset usually springs to life.
Do you sometimes find yourself misremembering recent market history so that your previous decisions are viewed more favorably? If so, you’re simply human. Psychologists proffer that it’s common to look in the rear- view mirror as a way of justifying choices.
Hindsight errors are centered around a belief that whatever happened in the past was bound to happen and uncertainty had little to do with it.
Professor Meir Statman writes, “Hindsight errors might arise from unawareness of the influence of randomness and luck or from a desire to see the world as predictable, devoid of randomness or luck.”
Don’t Panic
It’s hard to know precisely how you will react in the event of a sizable decline in your portfolio. Even if you believe you could avoid bailing out, what if the decline was the result of a terrifying global event or a major terrorist attack? Would the context for the decline matter?
When it comes to uncertainty the circumstances surrounding the uncertainty usually carry weight in your decision making process. In those times it’s easy to look past your investing time horizon and focus instead on flexibility.
Your financial plan should address both endurance and flexibility. There likely will be times where one of these carries more importance, but ultimately you need both.
Having a cohesive financial philosophy can go a long way toward helping you deal with uncertainty. A clear investing philosophy serves as a touchstone when the stormy investing seas arrive. It’s important to have an investing philosophy that you can stick with both in good times and bad. Start there. Ready for a real conversation?
Disclosure
Apollon Wealth Management, LLC dba J.E. Wilson (Apollon) is an investment advisor registered with the SEC. This document is intended for the exclusive use of clients or prospective clients of Apollon. Any dissemination or distribution is strictly prohibited. Information provided in this document is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product or service. Investing involves risk, and while remaining invested can support long-term goals, it does not guarantee a profit or protect against losses. Advice may only be provided after entering into an engagement agreement and providing Apollon with all requested background and account information. Please visit our website https://apollonwealthmanagement.com for other important disclosures.