Mood Swings and Investing Decisions
Financial advisor and author Richard Baker looks at the role of client feelings in retirement planning.
People have mood swings and often make decisions based on their current feelings.
Following one’s feelings instead of using a planned system can lead to disaster when managing the assets inside a variable annuity or variable life policy, or any aspects of retirement planning.
Understanding that a mood swing can overturn solid decision-making can help us deal with our income planning clients and prospects.
A person may recognize something that has triggered a shift in their mood, such as a stressful event at work. But it’s also not uncommon for mood swings to occur without an obvious cause. People may even experience changes in their mood if they have an underlying mental health issue.
Investor Sentiment
Stocks fell sharply earlier in the year. Investors preferred more defensive stocks — in utilities, health care companies and food companies.
Then, just a few weeks ago, technology companies like Apple, Amazon and Tesla were benefiting from a strong market rally. The stocks of consumer discretionary companies, including Nike, Starbucks and McDonald’s, were rebounding, too.
Inflation data and a strong jobs report suggested that that the economy wasn’t slowing as sharply as many feared.
Now, the market is falling again, because of fears about inflation and new Federal Reserve Board efforts to use rate hikes to fight inflation.
Rising rates can slow consumer purchases and hurt stock prices.
Bull or Bear?
Is this a bull market or just a bear market rally?
I read analysis pointing both ways. The bullish (optimistic) analysts think the economic slowdown will be minimal because of high individual household and corporate cash deposits.
The bearish (pessimistic) analysts believe the negative effects of the Fed’s rate hikes are taking a while to affect our economy, and we are just starting to feel their impact.
Either way: Exposure to volatility is part of investing.
A smart advisor will understand that mood swings are part of being human, and knowing that fact can lead a prospect or client back to the original plan and goal.
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