facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
The Emotional Cycle Of The Average Investor Thumbnail

The Emotional Cycle Of The Average Investor

The picture associated with this blog shows what the average investor not working with an advisor often does.

They buy the when they perceive the market is doing "good" and they sell when they perceive the market is doing "bad."

I'm seeing that happen right now everywhere I look.

When the market goes down it's normal to feel anxious.

You wouldn't be human if you if you didn't.

But should you actually get out of the market and sell your investments?

Should you get out of the market now?

Let's run through a scenario I experience as an advisor when markets are perceived to be "bad."

Client: We've "lost" 20-30% of our money in this Bear Market.

Advisor: I understand and totally empathize with your feelings, but you must know that getting out of the market now is exactly the wrong thing to do and could destroy your retirement plan....

Have you actually "lost" anything? Or are you experiencing a temporary decline of 20-30% from a previous market high? There can be no permanent loss of your portfolio until we actually sell your investments.

This is exactly why you hired me. To help you make long-term rational decisions about your portfolio and retirement plan.

Client: But shouldn't we do something?

Advisor: Good question. You're absolutely correct that we are experiencing an economic downturn and understandably this is causing you a great deal of anxiety. You wouldn't be human if it weren't. However, it's exactly in times like these that we, as long-term investors, earn the permanent returns of the greatest companies in the United States. We earn those permanent returns by our willingness to accept these temporary declines. Declines are temporary but the returns are permanent.

Client: But when will this end?

Advisor: I don't know that answer.

Client: What?

Advisor: Like you, I can't predict the future. I can't tell you how or when this current crisis will be resolved. I just know that it will end at some point.

The market is down 20% and the financial news is telling you that this time is different. This time is surely economic Armageddon. But does it seem likely to you that 500 of the largest, most seasoned, most profitable, most well-financed companies in the world have suddenly lost 20% of their value as ongoing businesses? Meaning if you wanted to buy Amazon the company, do you think you would get a 20% discount off the price right now?

Or does it seem more likely that their stock price has temporarily dropped 20% as a direct result of investors panicking and selling their shares at a loss?

Client: I see what you are saying now. The cash value of the company and the price of their stocks are two different things.

Advisor: Exactly. Since World War 2, the average Bear Market has caused the S&P drop 30% from it's previous high. We're already at 25% right now. So unless this crisis is worse than every crisis since World War 2, one would guess we are very near the bottom of this Bear Market and the people selling their investments right now are breaking the cardinal rule of investing. They are selling low. Which is exactly the opposite of what I would tell you to do.

Client: So are you saying we should buy more investments now?

Advisor: I'm saying you should always buy low and sell high whenever possible. Warren Buffet said it best.

"Be fearful when others are greedy, and greedy when others are fearful."

Client: That makes sense. Let's do it!

Advisor: I'll review your account and see how much we can buy while still maintaining the long-term integrity of your retirement plan.


This is a summary of conversations I've had with clients the last several months. I wanted to share this with you so you might see the real value of a financial advisor.

My value isn't picking investments. A robot can do that for you.

My value is keeping you rational in irrational times and helping you to avoid making financial mistakes from which you may never recover.

My value is helping you do the right thing even when it may seem counterintuitive.

My value is creating a plan and keeping you on that plan through the good times and the bad times.

You need a plan

At 80/20 Financial Services, we are retirement planners. We specialize in retirement planning for electric cooperative employees within 5 years of retirement or already retired.

We believe a goal of retiring - without a plan to increase your income during retirement- is simply a plan to run out of money. Retirement planning is a strategy to maintain and increase that dollar amount over time.

If you're age 50 or over and still in the accumulation phase (pre-retirement) we can help you figure out where you need to go and how to get there. If you are retired or nearing retirement, we can create a plan which will outpace inflation and increase your income over time. The consultation is free and without obligation. Contact us to set up a consultation.

Our mission is to increase your time, money and peace of mind by helping you create a retirement income and investment plan that aligns with your retirement goals and then guide you through the completion of that plan year after year.

For more articles about retirement planning and investing, click here. You may also sign up to receive our weekly blog here.

Thanks for reading!

Brian Coleman-Owner/Advisor

80/20 Financial Services is an Independent Registered Investment Advisor (RIA) registered in the state of Missouri (CRD# 300772). Being independent allows us to work exclusively for YOU. 80/20 Financial Services is the legal name of our Registered Investment Advisory Firm (RIA). Electric Cooperative Retirement Planning is what we do. Our specialty is retirement planning for electric cooperative employees within 5 years of retirement or already retired

We specialize in helping electric cooperative employees create their retirement income and investment plans. Retirement can last 20-30 years. You need a plan!

Sketch by Carl Richards-The Behavior Gap