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Ask Dana! Losing Sleep Over Your Investments or Personal Finances?

Ask Dana! Losing Sleep Over Your Investments or Personal Finances?

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Recently, someone I’m close to confided that they were having trouble sleeping. The reason was clear to them—it was due to the recent stock market volatility and risks they were seeing all over the news as well as seeing their account values come down from peak levels reached within the last year. When I learned that Natural Nutmeg’s topics for this issue revolved around sleep and peace of mind, I was inspired to share some helpful hints and personal observations from the last 15 years of advising private clients with their investments and overall financial well-being.

Each of us have our own relationship with money. Over the years, I’ve tried to drop into the unique perspectives out there and understand what it feels like, emotionally, for the many and varying clients and personalities I’ve been blessed with the opportunity to advise. Financial security, retiring comfortably, investing with peace of mind, or even designing your estate plan are very important concepts that connect our finances with our personal lives and emotions, along with the uncertainty and ongoing change in the world around us.

To this end, the following are five areas where raising your financial awareness may help you shift from an anxious mindset to a more comfortable and grounded perspective.

1 Time in the Market vs. Market Timing
As a holistic-minded individual, I must admit that I do keep a crystal ball at my desk, and citrine crystals abound in my home and office. When considering markets and investment allocations, though, relying on a hunch or emotional jitters is not recommended when deciding whether to go to cash or to invest. There have been countless statistical studies done around the concept of market timing. The sad truth is that it seldom works. Generally speaking, the longer an investor stays the course in the market, the probability of meeting their long-term investing goals increases.

2 Buy Low, Sell High
This concept is huge and ever-present…but is much easier said than done by your average investor. I have typically observed that when people feel most comfortable investing is when the market has been in a positive, upward trend. When people want to sell, it is generally during a sharp or prolonged market correction or decline.

Think about that concept for a few more moments. In a marketplace of other goods or services, during a sale (prices go down), people want to buy more—not the case with stocks for the average investor. The stock market is one of the rare instances that when prices go down people want to buy less, because of fear of more declines. The reverse is also noteworthy—in the stock market, the average investor is most eager to “get in” or buy when the price may be overvalued, or too expensive.

As counterintuitive as it may seem, remember that an attractive entry point in markets may actually be when you feel most uncomfortable.

3 Human Behavior and Chasing Returns
Be aware of our natural tendencies to chase returns—this happens all the time. It occurs if, when others are making higher returns, you feel an urge to invest in something regardless of risk consideration. The news media also fuels this fire. Think about the bubbles in our recent history, such as the technology stock bubble in late 90s or the recent melt up we saw during COVID lockdowns in names like Netflix or Zoom—or even the meme stock culture craze and names like GameStop or AMC. The perception of risk fades during those momentum-driven periods. It is unfortunate that in such instances a conservative investor chasing returns will be more likely to buy high, then sell at a loss. Wild markets have occurred throughout history and will continue to occur, in some form or another, in the future. Remember to raise your awareness, stay calm, set goals, have a strategy, and seek prudent advice when you need it.

4 Human Behavior and Anchoring
This also happens all the time! An anchoring bias in investing is when your mind holds onto a certain value point that has been reached and becomes more influential than it should with your decision making.

For example: Rose retires with $1,000,000 invested. Over time, the value goes up and down and after two full years and positive markets, her statement says $1,300,000. Then, in a few months (the first quarter of year 3), the market goes down and her account value drops 8%.

Timeframe Account Value
January Year 1
$1,000,000
December Year 1
$1,090,000
December Year 2
$1,300,000
March Year 3
$1,196,000

 
Seasoned investors may not be impacted emotionally by this at all. In their mind they are investing for the long term, and their average annual return is still quite positive since they started ($1,000,000 vs. $1,196,000 in just over two years). They are pleased. On the other hand, someone with an anchoring bias would see the $1.3 million mark and would only see that they are down from that. The loss is all they would feel emotionally.

5 Dollars vs. Percentages
As your account values grow, the actual dollars from a 2% move changes dramatically. For example, a smaller-sized downward move of 2% in a $100,000 account would make the account go down $2,000. When your savings include larger balances, though, the dollar amount move may seem very large, even though it is the same small-percentage downward move—on a million-dollar account, that same move would be $20,000. This is something to be aware of when your account value grows: more money = larger dollar moves—these are common, smaller fluctuations that are nothing to lose sleep over!

Dana R. Mascalo, CFP®, RLP®, AAMS®, C(k)P®, is a Managing Partner with TrinityPoint Wealth, an independent SEC Registered Investment Advisory firm in Milford, CT and Charlotte, NC. Dana advises high net worth clients with complex needs and is sought after by individuals, families, business owners and executives all over CT and the United States. Acting as their personal CFO, Dana looks at a client’s entire financial life with a visionary lens, advising on investment portfolios, retirement planning, stock options, life transitions, exit planning for business owners, customized advanced cash-flow planning and multi-generational wealth transfer strategies.

Disclosure: This material is provided by TrinityPoint Wealth for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, however, TrinityPoint Wealth cannot guarantee the accuracy or completeness of such information. TrinityPoint Wealth does not provide tax or legal advice.