January 6th, 2017 | David Simpson

Investing with a plan or emotionally reacting

When you plan a road trip, do you focus on each mile or make decisions based on the destination as well as the stops you want to make?  When you come to a decision point in your trip, do you feel anxious or free to make a decision?

We are at a crossroads now with the next presidential inauguration.  We have had the election and a rate increase by the Federal Reserve in the past few months.  Many will speculate how the election or rate increase will impact investments.  Seldom is the impact of government policy simple and straightforward or offers a clear-cut answer.

President-Elect Trump is selecting his cabinet and preparing for the inauguration on January 20, 2017.  Many are speculating o how the markets are going to move with the new policies.  In our Q1 2016 Newsletter, we included an article that shows that neither party is better than the other for the investment markets.  The article showed that neither party stands out from the other with regards to investment performance.  Instead of speculating about how one party will do compared to the other, it is more important to make a long-term plan and invest according to your goals.

When you are reading about how the latest political events will affect the market, it is important to separate emotions from your portfolio decisions.  There are a couple of emotional patterns to be aware of and make sure that you are avoiding.  Behavioral psychologists have labeled these patterns:

  • Choice Paralysis – Getting overwhelmed by a decision and then procrastinating or avoiding the decision.
  • Present Bias – Not thinking about the future and only thinking about the present.
  • Recency Bias – Focusing significantly on recent events and using these to judge the future.
  • Confirmation Bias – Subtly seeking out and paying more attention to information that supports your view and discrediting information that contradicts the view.

How are you making your financial planning decisions?  Have you laid out a plan and are following your map or are you focusing on each mile marker and are worried how the journey is going?  If you find the current environment overwhelming and find it difficult to make a choice of plan, please call us.  If you find that you are focusing on the current environment and find it difficult to move forward with your plan, please call us.