Emotions and Your Money

Emotions and Your Money

Investing in the stock market can sometimes feel like riding a rollercoaster, full of ups and downs. There’s the thrill and excitement when the market goes up, but also uncertainty and fear when it goes down. It’s important to steady your emotions and invest for the long-term, avoiding the quest for short-term gains.

It’s natural to be concerned about how a market decline might affect your current investments, but now is not the time to make any spur-of-the-moment moves. Consider your long-term strategy and goals—and remember that market ups and downs are to be expected.

A company, American International Group (AIG),published a document, “Emotions and Your Money”.It provides five key tips for staying grounded when market volatility causes emotions to run high. They are:

1) Be patient: It’s natural to be concerned about how a market decline might affect your current investments, but now is not the time to make any spur-of-the-moment moves. Consider your long-term strategy and goals—and remember that market ups and downs are to be expected.

Source: 2021 Quantitative Analysis of Investment Behavior Supplement, DALBAR. This study utilizes data from the Investment Company Institute and Standard & Poor’s to compare investor behavior with the returns of the overall equity market. The Average Equity Fund Investor represents the aggregate action of all investors in equity mutual funds. Investor returns are determined using the change in total equity fund assets after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. The S&P 500 Index is an unmanaged index of large-cap U.S. stocks that is considered to be representative of the U.S. equity market. Past performance is no guarantee of future results.

2) Stay grounded: It’s easy to feel confident when your investments are on the rise. But remember to stay grounded. Investing in something that looks like a “hot pick” may not be the best approach. Investments that perform well one year may not do as well the next. For example, the top asset class performer in 2017 was emerging market stocks, earning +37.28%, but in 2018, its returns dropped to the bottom of the rankings at -14.58%.

Source: Wilshire Compass, 2020. Emerging market stocks are represented by the MSCI Emerging Markets Index. Asset class rankings are based on 10 indices representing different asset classes from bonds to international stocks. Investments in non-US stocks are subject to additional risks including political and social instability, differing securities regulations and accounting standardsand limited public information.

3) Be prepared: In a down market, you may be reluctant to invest because of earlier dips in your investments. Sometimes it’s okay to make investment decisions as the market begins to recover. Be vigilant and ready to take that step toward reaching your financial goals. In fact, research has shown that much of the gains of a new bull market are made early in the rebound.

Source: FactSet, NBER, Robert Shiller, Standard & Poor’s, J.P. Morgan Asset Management. *A bear market is defined as a 20% or more decline from the previous market high. The related market return is the peak to trough return over the cycle. Bear and bull returns are price returns. J.P. Morgan Asset Management Guide to the Markets – U.S. Data are as of December 31, 2020

4) Be vigilant: While stocks can certainly drop in value over the short term, they are also one of the few investments that offer the long-term growth potential necessary for investors to reach their retirement goals.

Note: Past performance is not a guarantee of future results. Stocks are represented by the S&P 500 Index; bonds by the Bloomberg U.S. Aggregate Bond Index; and cash by the FTSE Treasury Bill 3 Month Index. Stocks are subject to significant price fluctuations and therefore an investor may have a gain or loss in principal when shares are sold. Government Bonds and Treasury Bills are subject to interest rate risk but are backed by the full faith and credit of the U.S. government if held to maturity. This example does not take into account taxes, fees or expenses; if shown, the results would be lower. Indices are unmanaged and cannot be invested in directly. Source: Morningstar Direct, 2022.

5) Stay focused: While cash investments like Treasury bills and money market funds may help preserve principal and provide you with liquidity during a down market, they are unlikely to generate the returns needed to offset taxes and inflation and may affect your long-term retirement goals.

Source: Morningstar, 2021. Stocks are represented by the Ibbotson Large Company Stock Index; bonds by the 20-year U.S. government bond; cash by the 30-day U.S. Treasury bill; and inflation by the Consumer Price Index. Stocks are often subject to significant price fluctuations and therefore an investor may have a gain or loss in principal when shares are sold. Government bonds and Treasury bills are subject to interest rate risk but are backed by the full faith and credit of the U.S. government if held to maturity. The data assumes reinvestment of income and does not account for transaction costs or taxes. No state income taxes are included. Indices are unmanaged and cannot be invested in directly. Past performance is not a guarantee of future results.

With those five tips, we encourage you to team upwith your financial professional to build a disciplined investment strategy that can help you ease emotional investing. As always, we seek to provide you with informational resources that can help you make informed decisions. We hope you’ll find it useful. Please reach out if you have questions or concerns or would like to have a conversation; that’s what we’re here for.

Link to AIG Document: https://s3.amazonaws.com/static.contentres.com/media/documents/87b319ad-fab7-4437-af75-df5bc514f231.pdf

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Adrianna Rocha

Client Relations Specialist

240-379-6929 V
240-439-6889 VP
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adrianna@kramerwealth.com

Adrianna Rocha joined Kramer Wealth Managers in 2021.

Adrianna is responsible for client experiences and service. As part of the customer service team, she strives to help and provide top-notch service to our clients. As part of her role, she communicates with clients through videophone, schedules client meetings, prepares and processes forms, and gathers information for our advisors.

Adrianna Rocha graduated with a Bachelor of Arts in Communication Studies from Gallaudet University in 2017. Before she joined our team, she worked in the customer service industry for nearly a decade. She excels in human-to-human relations and takes pride in not only her own accomplishments, but her clients’ as well. Adrianna enjoys chatting about her slight obsession with dogs, houseplants, essential oils, and food: especially Mexican food! She is also a proud fur-mama to her beautiful Aussie-mixed pup, Ziva.

Adrianna is not registered with Osaic Wealth.