We see a lot of scary headlines lately; war in Eastern Europe, the highest domestic inflation in forty years, sky-high gas prices. And, of course, the seemingly endless pandemic. When you see these headlines, pushing the Easy Button seems like the safest option, sell and go cash, protect yourself and your family.

But sometimes, the best thing to do is the hardest thing to do. We’ll talk about why doing nothing is the smartest thing you can do in times of market mania to protect your investments.

Now, if you are old enough to be reading this, the latest round of scary headlines is nothing new. Scary headlines have been around since headlines have been around. Let’s just look back at the past decade or so:

● The BP oil spill in the Gulf of Mexico
● Chrysler and GM filed for bankruptcy
● The Flash Crash
● Government shut down
● Brexit
● The yield curve inverts
● The trade war with China
● Covid and its variants

And now we see the headlines about the things we talked about in the opening. So yes, things are scary, and the market is down. The S&P is down 13-14%, and the Nasdaq is in a bear market. If we had a crystal ball, we could look into the future and know exactly what we should do.

Zoom Out

Well, we don’t have a crystal ball, but we have something almost as good when it comes to predicting the market and deciding what we should do to protect our investments; the past.

Let’s look at S&P returns for the last few years:

● 2019: Up 28.88%
● 2020: Up 16.26%
● 2021: Up 26.89%

Those were some rough years; 2020 was the year essentially the entire world economy shut down. And yet. And still. Not only were there positive returns, but they were also very good returns any investor would be happy with.

Zoom out on history to get a better perspective when you see scary headlines. Historically, the market bounces back; historically the market has positive returns.

Anchoring Bias

It’s not just the headlines working against us; anchoring bias is hammering us too. Anchoring bias is when we judge our returns based on the most recent market high rather than on our starting investment.

If you started with a $400,000 investment and over time it rose to $500,000 but then went down to $480,000 in a short-term market downturn, you look at it from the perspective of having lost $20,000 rather than being up $80,000.

If you’ve just recently started investing, then yes, your investments are down. But if you’ve been investing for the past decade, your investments have risen pretty significantly. Between March 2009 and December 2019, when most of the headlines bulleted above happened, the S&P was up 495%!

Invest in good companies that help drive the economy and positive returns. There is no guarantee in investing, but this strategy has historically had a positive outcome for long-term retirement investors.

Nurture Your Tree

The Easy Button is selling in the face of scary headlines. But when you do this, you have to be right twice; when you sell and when you buy back in. And the more times you have to be right, the more you increase your odds of being wrong. And this is a dangerous place to be, especially in retirement. You don’t have the time horizon or income to get it wrong.

The hardest thing to do is nothing. There is a great book called Simple Wealth, Inevitable Wealth by Nick Murray. At the beginning of the book, Murray encourages the reader to close the book and look at the cover. The book is about investing, but the cover doesn’t feature the imposing facade of the New York Stock Exchange or a frantic scene from the trading floor.

The cover features a large, lush tree. Murray explains that to nurture a healthy tree that will provide you and future generations of your family with shade, oxygen, and beauty; you don’t have to do much. You plant the tree, and the atmosphere around it provides it with everything it needs to grow and flourish; soil, nutrients, water, and sunshine. The tree knows how to use these resources to grow.

You wouldn’t dig up the tree every 90 days to check how the roots are coming along. Ninety days don’t make a lot of difference to a tree. You wouldn’t dig up the tree when winter comes and store it in your garage. Yes, the tree would have shelter, but it wouldn’t have access to the other things it needs to grow and be healthy. To nurture the tree, all you have to do is give it time and room to grow.

Investing is the same. Time and the environment are on your side, and the more you meddle, the worse the outcome.

So the best thing to do is the hardest thing to do; nothing. Or at least don’t sell because of scary headlines. If the market is up, you can consider turning on dividend reinvestments; when it’s down, you can consider doing a Roth conversion.

Stay the course and Create The Life You Love.

Listen in as I share why perspective is so important when it comes to investing, what anchoring bias is, and how to avoid getting caught up in your personal anchoring bias when it comes to investing. I also explain why doing nothing in a tumultuous market is often the best thing you can do to protect yourself and your investments for the long-term.

Listen to the Full Episode:

 

What You’ll Learn In Today’s Episode:

  • Where the markets are today.
  • Why perspective is everything.
  • What anchoring bias is.
  • When divesting in tumultuous markets is most dangerous.

Ideas Worth Sharing:

“The hard part, and usually the part that is right, is not taking any action at all.” – Jonathan Bednar

“Investing can be very scary.” – Jonathan Bednar

“It’s fun when everything is going up, but it is painful, miserable, scary when you see a slow grind down.” – Jonathan Bednar

Resources In Today’s Episode:

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