Investor Behavior

It’s one thing to know the X’s and O’s of personal finance, and the numbers of making smart money decisions.  It’s a completely different thing to have the financial behavior skills to execute on that knowledge.  Learning formulas and calculations is easy work compared to mastering your own behavioral biases, and emotions when it comes to your own finances.

We’ve said it before, life here at the Jersey shore isn’t cheap.  Making sound financial decisions is crucial to supporting your lifestyle in this area.  Identifying potential costly behavioral mistakes is the first step in building a strong foundation towards positive decision-making.  We discuss a few common money mistakes below.

Mistake #1: Playing Victim to Your Debt

Feeling sorry for yourself isn’t going to help you pay off your debt any quicker.  Telling yourself “I’ll never get out of debt. This is pointless” is a great way to stay in debt forever. 

Digging yourself out of debt takes hard work and focus.  If you’re convinced the task is insurmountable, you’re likely to put less effort into accomplishing it.  We simply cannot allow that to happen when it comes to debt.

Mistake #2: You Don’t Plan for the Future

The earlier you start saving, the harder your money will work for you in preparing for retirement. It can be tough to think about retirement in your 20s and 30s, but putting a small amount in retirement savings every month through your early adult years could mean thousands more you’ll have to withdraw in your 60s and 70s.

We say it here all the time, “future you” will be glad “present you” made these decisions and took a little bit of time to plan things out. 

Mistake #3: You Aren’t Prioritizing Properly

Taking the last point in a different direction, prioritizing financial decisions is a huge part of financial success.  Finding that balance between putting a little away for retirement versus having a substantial enough cash flow each month to survive now is so important.

When you’ve got your own retirement to think about, aging parents and kids headed off to college – how do you know what to spend and where?

Working with a financial planner can really help you prioritize things properly.  As basic as it may sound, staying organized with your finances is half the battle.

Mistake #4: You Don’t Have a Distribution Strategy

Saving enough for retirement is really half the battle. The other half? Spending your money in retirement AND spending it the right way.  Figuring out what money to draw down first, and what the most effective tax strategies are is more complex than some would like to believe.  It’s not overwhelmingly difficult, but it does require a good amount of thought and planning ahead of time. Heading toward retirement with no distribution strategy in place could create unnecessary tax burdens and financial distress.

Fixing Bad Financial Behavior

Now that we have identified some bad behaviors a lot of people have, how do we fix them?

Conquering bad financial behaviors takes focus and hard work. There’s no quick fix, and you should expect changes to be gradual. Below are a few of our tips for conquering bad behaviors that may be affecting your financial wellness.

Tip #1: Be Intentional with Spending

In today’s day, it’s become easier and easier to spend money without even thinking about it.  Online shopping and electronic payments make overspending very easy.  Being intentional with every dollar you spend is the key to success. 

Knowing where every dollar goes is the best way to get yourself started on the right path.  It makes keeping track of your financial goals that much easier.

Tip #2: Don’t Let Financial Paperwork Pile Up

Avoiding a bill or bank statement doesn’t make it go away – but it does increase the chance of incurring late fees and penalty charges. If you aren’t already, get organized with your statements and other financial paperwork.

Especially in 2021, there are plenty of organizational apps and programs you can use to organize your bills each month.  Statements and bills can be easily paid online, and cuts down the hassle of physically writing checks.

Tip #3: Create an Emergency Fund

This is ALWAYS good advice.  As we’ve discussed countless times before, if you don’t have an emergency fund established – START RIGHT NOW.  If 2020 wiped your emergency fund clean, start again!  There is never a bad time to fund your emergency savings.

Tip #4: Make a To-Do List

The truth is, there’s almost always something you could be working on when it comes to boosting your financial wellness. If it feels overwhelming, start writing down everything on your financial to-do list. Breaking it down and crossing one thing off your list at a time can help make financial wellness much more manageable.  (A little mental trick to use is to put some SUPER easy things on the list, so you can feel motivated about crossing things off!)

It’s not easy to break habits, and it takes time to form new, better ones.  But there is no better time to start than right now!  2021 is the year to get things on track.  If you’re feeling overwhelmed about your finances, give us a call.  We would be happy to help you organize everything and build a plan to tackle your financial goals.  You can click here to schedule an initial call with one of our team members.  There is no cost or obligation!

At the present moment in time, markets appear to be all sunshine and rainbows.

But there was no sunshine a few months ago. If we dial the clock back to March and April, I was mentally preparing to explain to folks how 2020 would be a “lost year” investment-wise.

You can predict the narrative forming in my head: “Well, the pandemic tipped our economy over into a recession, and the markets never recovered.”

We had all seen the headlines – “experts” projected two million people in this country were going to die from this virus. It was serious, and out of left field.

When markets began to show signs of life in April, there was a glimpse of sunshine. During that second quarter, I thought to myself, “if we get back to even and stay flat for the year, that might be a minor victory.”

We EXPECT down years in the market. That’s right, we expect years where we will lose money. Recently, we’ve had periods where we’ve lost money. But these periods have not followed the calendar. Here are a few:

From mid-2015 through mid-2016, we had a fourteen month period where the Dow Jones and S&P 500 went nowhere. During that window, the Dow and the S&P dropped about fifteen percent before recovering.

However mid-cap stocks and small-cap stocks were down over thirty percent in that period. Some sectors did not recover – for years.

In 2018, from October 1st through December 24th, the Dow and S&P 500 dropped roughly twenty percent inside one calendar quarter. No sunshine there, but that was followed by a quick reversal in 2019.

In 2020, markets fell approximately 34% from mid-February through March 23. Said another way, that’s about 34% in about thirty-four days.

Lack of Sunshine

Many times, when markets fall, they fall FAST.

But here is why I bring up the point we’ll have some tough times. Bad years, including multiple down years, are already “baked in the cake” when we make projections and plans with our clients.

As I’ve mentioned in videos and podcasts, we are by nature optimistic, but we have to do our planning work with a pessimistic view of the future.

Meaning, we have to plan for a future where everything could go wrong. It’s not always going to be sunshine and rainbows.

This clip is just 46 seconds, but the message is priceless.

No, it’s not always sunshine and rainbows. The “year of massive losses” I was preparing for, didn’t materialize.

Does it mean we are out of the woods? No.

As Brendan has eloquently explained many times, we can KNOW the future… but it still won’t help us, as investors. Brendan explains it extremely well in his post “All At Once.”

What Brendan means is even if we had a time machine and know with certainty some future event – a presidential election, a pandemic, a recession, what we do NOT know is HOW the market will react to these events. It’s foolish to believe in “if this, then that” when it comes to market behavior.

And between the four investment advisors and planners here, we can come up with DOZENS of examples where some strange event occurred. Often it’s a strange event, out of left field, and folks proclaimed, “so this will be what tips the market over.”

Meh. We simply do not know.

With that in mind, when we see and hear people ripping their hair out over stock market volatility, we presume these folks have been “betting the rent.”

Meaning, these folks who are flipping out usually have money in the market that doesn’t belong there. Public Service Announcement (PSA) for all: if there is money people will need in the next year, or in the next two years (or even three years if you are extremely conservative) those funds should not be at risk in the market.

Steal My Sunshine

Terrible reference to a very catchy tune from 1999. But here is how your sunshine can be stolen. By selling, and especially selling during a panic. Check this, from that bastion of financial news, the NY Post:

Painful as it was, patience paid off for investors

Here’s the main message from the Post. “Only by resisting the urge to sell and sidestep the pandemic-caused panic” would they have gotten the full return. “Many investors unfortunately did not have the resolve or ability to hold on through that.”

The 2020 election has proven to be one of the more contentious elections in recent history.  However, that seems to be par for the course when it comes to elections.  “Contentious” is not a new adjective to describe Presidential elections.  From the political match-up of Jefferson v. Adams to this year’s Biden v. Trump, mud has always been slung, accusations have always been made and uncertainty seems to be everywhere.

The internet and social media have definitely changed how we consume information about the elections over the last handful of years.  Facebook posts, email blasts, TV ads, you name it – we are constantly being bombarded by political messages every day.  

Pair this with the fact that 2020 has been anything but ordinary, and you have an election year truly like no other.

Take the Emotions Out of Investing

Whether you’ve been guilty of it yourself or you’ve seen others take part, social media channels like Twitter and Facebook make it all too easy to share all kinds of information. This is true in any instance, but it can be especially effective when these posts are about political candidates.

The problem is, being inundated day in and day out with information about our country’s political future (especially information that’s alarming or scary) can take its toll on anyone watching or listening. You’ve already heard the predictions – “If Biden wins, the stock market is sure to tank.” Or, “If Trump gets re-elected, the stock market is sure to tank.” Whether it’s a pundit talking on television, or your co-worker in the break room, EVERYONE seems to have an opinion.  What does this mean for your investments?

As an investor, you have a few responsibilities here.  It’s important to try and make a conscious effort to drown out the noise on social media and financial TV. Think about YOUR personal financial goals and make sure to keep in regular contact with your investment advisor. He or she can offer the educated, unbiased advice you need to stay on track in the face of uncertainty.  Whether it’s a contentious election, a pandemic, or something else – there will always be something making headlines and moving the markets. As fiduciaries here at Mullooly Asset Management, we have a legal obligation to act in YOUR best interest.

Historical Stock Market Performance During Election Years

Just because the stock market has acted certain ways in the past does not guarantee it will continue to do so in the future. But as an investor, it may interest you to see how the stock market has performed historically during and after presidential elections years. Below we’ve charted out the S&P 500 returns since the 2000 election:  

Additionally, below shows the S&P 500’s percentage of return during a president’s full term dating back to 1981. This information was gathered from YCharts and presented by Forbes:

There are so many differing factors that play into market performance.  Simply basing your long-term investment decision on which political party is in power is not a recommended strategy.  As you can see above, the stock market hasn’t cared if a Democrat or Republican is in control, and you shouldn’t either when it comes to your investments.

If the upcoming election has you worried about the future of your portfolio, take some time now to speak with your investment advisor or financial planner. They may be able to provide important insights into whether or not your investments are still aligned with your long-term goals.  If you don’t have an advisor, we would be happy to speak with you.  Click here to schedule an initial call with our team!

Do you need to tell your investment advisor EVERY single detail of your daily life? No. However, if it’s going to impact any part of your financial future and your financial goals – you NEED to let your advisor know. You and your advisor are a team. Together, you can create a well-oiled machine of a plan that can help you get to where you want to go financially.

Unfortunately, you may not be sharing with them everything that you should be. Whether you think it’s unimportant or are a private person, not sharing what you need to with your financial planner could result in problems with your financial future. Below are a few things that you should always share with your advisor.

1. What Your Goals Are

This is an absolute no-brainer. No questions asked. Not only financial goals, but life goals, family goals, retirement goals, etc. You may be concerned about caring for a family member or protecting your family against possible interruptions in income. While these may fall outside of what is considered traditional goals, your advisor may find certain solutions that can help these goals be obtained as well.

Planning for retirement here at the Jersey Shore, or buying your dream house down in Spring Lake, or starting your family somewhere in Monmouth County – if these are your goals, your advisor needs to know! It’s impossible to create a fully functioning financial plan without knowing what you’re planning for.

2. Your Honest Feelings About Your Financial Situation

The word HONEST is the key word here. Honesty is key when it comes to financial success. Not only honesty about what you want to achieve, but honesty about where your finances are right now. Don’t just tell your advisor what you think they want to hear. We tell clients all the time here that the specific numbers themselves don’t matter to us. We do not judge. What matters to us is that those specific numbers are in line with your goals, and your personal situation.

Being honest about your investments is a crucial part of this as well. If an investment makes you nervous, or you have a financial concern that has been worrying you, your financial advisor is there to help you work through it. We also can help explain occurrences in the market that can put your mind at ease. Remember it is our job to guide you through your financial journey and handle any concerns that may arise.

3. Changes in Your Job or Other Income

If it impacts your income, or your financial goals in anyway, we need to know about it.  Especially in a year like 2020 when there have been so many changes with jobs and workplace retirement plans.

Whether it is a big change such as losing a job or completely switching careers, or even small changes, such as changes to your benefits, you should tell your advisor. If you embark on a side job, you should also consult with them to determine the best ways for tax planning, and possible investment opportunities for any surplus of income.

If it has to do with money coming in or money going out, it’s safe to assume that your financial planner or advisor should know about it.

4. Major Changes to Your Personal Life

There are some aspects of your personal life that are actually necessary to share with your advisor. If you plan on getting married, divorced, move to a new house, sell your house, start a family and have kids, or anything that requires substantial financial consideration – you should let your advisor know. Your advisor can help you plan for the loss of assets in your divorce, help you invest properly to plan for children’s college education or advise you on changes to your life insurance and other assets to protect your family. Life can get pretty expensive, but the good news is that we can plan for it!

You and your financial advisor will both have the same goal in mind. You both want to see all your goals be met – financial, life, personal, family, etc. Remember to treat your advisor as part of your team and trust them with all the changes in your life that can affect your financial future. If you don’t have an advisor on your team, and would like to speak with someone, we would be happy to talk to you! Click here to schedule an initial appointment. There is no cost or obligation.

Just don’t get emotional about your investments.  It’s that easy right?  Not quite. Bad news about a company you own, or a sector you’re invested in can make you want to sell everything. Yes, investments can fluctuate based on news day to day, but when it comes to the stock market – it’s important to think long term. Making snap decisions could be hurting your financial plan in the long run, and we don’t want that.  So how do you remain un-emotional about investing?  Here are four little “tricks”.

Trick 1: Find an Advisor

Working with an advisor can be your first line of defense against making emotion decisions with your money. Investment advisors and financial planners can act as a behavior coach. In doing so, they can prepare you ahead of time to react calmly and unemotionally in times of market change. Here at Mullooly Asset Management, we try our best to educate our clients on the importance of planning, behavioral finance, and rules-based investing.

Trick 2: Put Your Plan in Writing

We all have that favorite dish that we love to make in the kitchen.  You know, that one you’ve made hundreds of times and know the recipe like the back of your hand?  Having a recipe memorized in your head is great, but what happens if you forget a step?  Having the recipe written down to glance at get the whole process back on track.

Your investments and your financial plan are the same. Putting your investment plan and financial plan in writing will provide you with reassurance. If you’re getting emotional about an investment, looking at your plan can keep you focused and ease that anxiety. Having a well thought out, prepared plan will have you ready for both good and bad scenarios. Seeing this in writing can provide the relief that you’re doing the right thing.

Trick 3: Forget About Your Portfolio… For a Bit

There was a study conducted in 1979 that introduced the “loss aversion” principle. This principle is used to describe instances where the weight of a loss is greater than the benefits of a reward. This principle is very real to plenty of investors. Investments going down feels much worse than the feeling of an investment going up. If this sounds like you, it might be time to take a step back from your portfolio. Checking your portfolio on a daily, weekly, or even monthly basis is a good way to drive yourself crazy.  The market fluctuates on a daily basis and those moves will make you want to make emotional decisions with your money. Regular rebalancing, and the occasional check-in, are acceptable, but forgetting about your portfolio for a while can benefit everybody.

Trick 4: Read Up On Market History

Depending on your depth of investment knowledge, you may already know what a bull market and a bear market are. But if you’re looking to better prepare yourself emotionally, you may want to do a bit of research into what historically happens in each market type. At Mullooly Asset Management, we do our best to intertwine lessons from market history into our weekly videos, podcasts, and blog posts.  This has the potential to make your investment decisions less behavior-based as you become more informed about past trends.

Removing your emotions from your investments is easier said than done. If you’re going to tune in to the nightly news or read about your favorite company online, remember to step back and think about your portfolio’s big picture. Doing so could save you in the long run.  If all of this seems overwhelming, and you’d like to utilize Trick #1, we would be happy to speak with you!  Click here to schedule an initial meeting with our team.  There is no cost or obligation.