Fear is an interesting thing. On the one hand, most people do not like the feeling. On the other, we owe our lives to fear in no small measure.
Without fear we would be running into traffic and jumping into the lion cage at the zoo. The survival of our species, past and present, depended on our capacity to be afraid. Overall, fear is a good thing.
That said, there can be too much of a good thing.
The odd thing about fear, and I believe this is true of our other emotions, is that it is more like a gross motor skill than a fine one - more like hitting a tree with an ax than threading a needle.
This makes sense viewed in the context of our evolutionary history. Out in the fields where we fought for our meals - thank you, The Who - when we perceived danger, it helped to be fast. If you are reading this, your ancestors were quick. The slow ones mostly did not survive long enough to reproduce.
Perhaps, an even better analogy is that fear is like radar. It registers inside us like a blip on the screen. Is the blip a flock of geese, an enemy plane or missile, or a harmless weather formation? Should we be afraid?
We cannot tell from the radar image alone, but we know something is there and it could be dangerous. We treat it as a threat even though almost all blips turn out to be harmless. We do this because the cost of ignoring it and being wrong could be fatal.
Most people take a similar view when it comes to saving and investing. I have been in the financial industry for nearly three decades and I can tell you the path is never completely clear or totally safe. Ever.
When markets fall our investments can lose value. Declining values naturally lead to feeling at least some fear about the future.
People’s response to anxiety is as common as it is understandable. Just like our response to the startling movement in the bushes 10,000 years ago, we jump back.
In the jungle, fleeing is often the best response. In investing, one usually does better over time to run toward relative danger, metaphorically speaking.
I have heard people say we should “master our fear.” I do not buy it. Fear is reflexive and even if we condition ourselves to stop responding to it in one area, it will surface in others. As it should. It exists to protect us.
Instead of working against our evolutionary heritage, why not surrender to it? We all get scared sometimes. However, our response to fear should not be the same in every circumstance.
Past market corrections have provided excellent entry points for investors. Ironically, part of what makes them good values is that people are reluctant to invest because they are afraid.
If we performed an accounting of every dollar invested over a lifetime, we would likely see some trends. Two of them would most likely be that the dollars we invested earliest in our lives and those we invested on market dips produced the best returns.
If you are hiking through the Canadian Rockies and sense danger, you should probably run. If it turns out to be a prairie dog, you can laugh about it but lose nothing. If you wait around long enough to learn it is a grizzly bear …! In this context, our instincts work for us.
If you intend to invest for a lifetime and things get scary, you might be best served by moving in the direction of the perceived danger. People’s instincts generally work against them during economic downturns.
It may sound weird, and acting against our nature usually feels a bit weird, but when the stuff hits the fan, it might just be the time to take action. Historically, this has certainly been a successful strategy.
If you would like to discuss this concept further, consider speaking with a financial planner you trust.
Scott R. McGimpsey January 17th, 2023
This material was prepared by Scott McGimpsey and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Neither Cetera Advisor Networks LLC nor Scott McGimpsey is engaged in rendering legal, accounting, or other professionally services. If such assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any federal, state, or municipal tax penalty. Moreover, a diversified portfolio does not assure a profit or assure protection against loss in a declining market. UNIFIED PLANNING GROUP is an independent firm.