05 Sep Short-Term Market Fluctuations Emphasize the Importance of Long-Term Financial Planning
One does not have to search very hard to find out how the stock market is doing in 2022. Insight into the psychology of investing, Long Term Financial planning and behavioral finance. Market volatility planning.
If you have just gotten back from an 8-month vacation with no Wi-Fi or cell service, let me clue you in… It’s been volatile and generally down most of 2022.
After a late summer rally as of 8/18/22, the S&p500 is off about (-9%) YTD. (https://finance.yahoo.com/quote/%5EGSPC/history/)
During periods of market downturn & volatility, the financial news media revs up their doomsday media machine engines. They bring on analyst after analyst predicting what happens next, where to put your money, where NOT to put your money and more head spinning insights.
Unfortunately the financial news media takes advantage of our human nature. They are in the business of keeping eyeballs on screens, not educating you in a fiduciary manner about your personal finances. (And how could they? They don’t know you, your income, assets, goals, needs, or desires!)
For better or worse, we are predisposed to pay attention to “scary” or “unknown” events when they occur. This core human tendency can be traced back thousands of years when an unknown or perceived risk could mean life or death.
Let me stop here and clarify before going any further. I do believe it is wise to be aware of what’s going on in the world. I am not advocating you completely stop reading financial reports, market updates or avoid taking a peak at your portfolio performance from time to time.
So…what can we do?
Now that we are aware our “caveman brain” wants us to react to every bump in the night, we can anticipate this emotional reaction to short term market volatility.
No ones loves seeing their retirement account balance drop lower, but that does not mean we let our caveman brain win and head off into the woods to engage the “scary noise”. (Meaning, we don’t have to panic sell our investments because of a normal market cycle playing out).
How can we harness these perfectly normal anxieties?
I think it makes sense to let those scary headlines and short market moves flow through you, and not let them build fear during your day to day life. This is where having a trusted fiduciary financial planning team on your side comes in handy.
You see, our job as Advisors is not only technical in nature, but has a behavioral coaching element as well. Of course, we study the markets, run reports, compare asset classes, decide on portfolio allocation, and more. But the behavioral side of financial planning is just as important. This time last year, I hosted the renowned Author, Psychologist, and Behavioral Finance Expert, Dr. Daniel Crosby (https://www.linkedin.com/in/danielcrosby/) on Centurion’s podcast, #CoffeewithConnections.
If you want a deep dive into just how important emotions, behaviors, habits, tendencies and fear drive money decisions give that episode a listen on Spotify. I’ll briefly summarize by saying…. It matters…. A LOT!
At Centurion Wealth, we do not chase headlines to build plans on a reactionary basis. Rather, we work directly with high net worth individuals and families to deeply understand each of their needs, goals and objectives as part of a holistic financial plan. We’ve proven this proactive and practical approach, through our trademarked, Family Benchmark ® Determination and Centurion Process. https://centurionwealth.com/the-centurion-process/
We know there will times of wealth accumulation and market euphoria while at the same time, we know one can expect a few storms and down years. Luckily, your comprehensive financial plan accounts for both scenarios and will guide us through achieving your financial objectives.
For those that enjoy short-form lines of wisdom, I’ll try to offer a few below:
- The stock market itself is unpredictable in nature, but your comprehensive financial plan is not.
- The stock market naturally goes through cycles of growth, sideways movement, retraction, & back to growth.
- Understanding and recognizing emotions is what we are after, not suppressing or ignoring them.
- It’s okay to read the news & kept up on market updates, but don’t let them drastically alter your long term plans.
- Let the short term market fluctuations emphasize the usefulness of a long term financial plan.
- Partnering with a fiduciary Long Term Financial Planning teams increases the likelihood of making sound behavioral finance decisions.
As a reminder, this is not investment advice. Centurion shares this information with you from an educational and informational position. We strongly encourage you to do your own research, consult with professionals and only then make financial decisions are that are specific to your unique position in life.
Advisory services offered through Centurion Wealth Management, LLC a registered investment adviser. Securities offered through Spire Securities, LLC member FINRA/SIPC.
If after reading this blog post and you’d like consult with our team on financial planning, please email us at firstname.lastname@example.org.
About the Author:
J. Cooper Simmerman, MBA is the Director of Communications for Centurion Wealth Management, LLC. His core role revolves around ensuring Centurion clients receive industry leading communication during the financial planning process, while also sharing Centurion’s values and operating principles more broadly with the public online.