Taking Control of Our Financial Fears

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*This article was originally published in the February 1, 2018 edition of Lynchburg Business Magazine.  Find it here.

If you’ve ever taken an economics course you may have learned that people are rational.  If you’ve ever met another person or simply looked in the mirror you may have learned that that’s simply not always the case.  Sometimes our emotions, not our intellect, drive our decision making process. When it comes to our financial decisions, it can pay to be aware of these emotional tendencies.  Chief among them: fear.  Let’s look at three different types of fear that can affect our financial well-being:

Fear of Missing Out (aka FOMO)

You remember the dot-com bubble, don’t you?  Everyone you knew was making it big.  It was a can’t lose situation!  You had to get in too.  You “did your research” by reading a few articles and visiting the website and jumped into a great-sounding internet company.  After all, you couldn’t be the one idiot who didn’t make gobs of money.  You do remember that, right?

In our now acronym-laden vernacular, what you experienced would be referred to as FOMO (fear of missing out.) FOMO can make us take undue risk.  When that next great opportunity comes along, ask yourself three questions to help keep your FOMO in check:

  1. What is the downside risk of pursuing this opportunity, and can I afford that risk?
  2. Could my resources be put to more proven productive use elsewhere?
  3. If I’d never heard about this potential opportunity would my life be perfectly fine without it?

Fear of Losing it All

Fear doesn’t always push us to take too much risk.  Sometimes it pushes us to not take enough.  Nearly every day there’s at least one talking head on one of the financial channels warning of an impending market or economic crash.  This constant fear-mongering causes many to hoard cash, gold, or other so-called “safe” assets.  There may be a place for these in your portfolio, but I would argue you’re doing yourself a disservice if that place is always 100%.  Our money is best allocated according to our financial goals, not our financial fears.  Long-term goals should be matched with long-term investments.  Letting short-term fears override this risk matching has the potential to limit the growth of our money to the point where those long-term goals aren’t as attainable as they could’ve been.

Fear of the Unknown

I don’t know what inflation will be this coming year or the year after that.  I don’t know where the stock market will be in six months.  I also don’t know who’ll win the next presidential election or what the next congress might do to my taxes.  What I do know, though, is that I cannot control any of these and so they likewise shouldn’t control me or my financial decisions.  Fear of the unknown can sometimes cause us to sit on the sidelines and “wait.”  Wait for what?  The certainty that doesn’t come.  Every month we hesitate because of our fear of the unknown is a month that we could’ve been benefiting from the results of an informed, albeit imperfect, financial decision.

Take Control of Your Fears

Fear is part of who we are, and we are all occasionally afraid.  Sometimes that fear is justified and sometimes it isn’t.  We can benefit from recognizing our own fear and how it affects us.  Fear of the unknown, fear of losing it all and fear of missing out all have the potential to negatively affect our finances, but they don’t have to.  The next time you’re making a financial or investing decision, ask yourself what’s informing, and what’s influencing, your decision-making.  Observe your fears.  Take note of of them.  Then decide what’s truly best for you.


Where to Find Good Reads

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In my monthly email to friends of Lynchburg Wealth Management, articles of interest in the financial world are often highlighted.  They’re so popular that I thought I’d share some of the websites I comb through in the hopes that you too will find them useful:

  • Real Clear Markets is updated twice daily with finance and market-themed articles from varying points of view. You may not always agree with the authors of the day, but you will learn something.  I do.
  • Investopedia is a great go-to when you’re looking up an unfamiliar financial term, concept, or situation.  Here you’ll find easy-to-read explanations to help bring you up-to-speed.
  • A Wealth of Common Sense is maintained by blogger turned financial advisor Ben Carlson.  Yes, technically he’s a competitor, but he puts out good material that is often worth the read.

As you’re exploring on your own, please feel free to share your finds and your thoughts with me.  I look forward to discussing them with you.


Helpful Financial Columns

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Did you know Lynchburg Wealth’s President, John Hall, is a regular contributor to the finance column of Lynchburg Business Magazine?  If you haven’t already, check out some of these more recent columns:

Be sure to pick up your copy of Lynchburg Business Magazine for more informative content from right here in the Hill City!


Announcing Our Summer Intern

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We’re very pleased to announce that today is the first day of our new summer intern, Jacob Ranson.  Jacob is a native of Appomattox and is a rising senior at Hampden-Sydney College studying business and economics.  In addition to his interest in finance, Jacob enjoys traveling, playing guitar, and fishing.  Please join us in welcoming Jacob to Lynchburg Wealth Management.


A New Face at Lynchburg Wealth Management

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We’re thrilled to announce that Raymond “Ray” Doot has joined the Lynchburg Wealth team.  Ray is a senior at Liberty University studying financial planning and will be interning at Lynchburg Wealth as a hands-on compliment to his classroom education.  His goal is to pursue a career in the financial services industry and obtain the CFP® designation.  Please welcome Ray to the team the next time you call or come by the office.  We look forward to having him onboard.

“You Need to Decorate for Christmas”

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Last week I had the pleasure of preparing a financial analysis for a young family who brought along their three-year-old son.  As the toddler was looking around my office it was obvious he was thinking something.  Then, he looked up at me and said “You need to decorate for Christmas.”  I smiled, and replied that he indeed was right.  I needed to do that.

We all know what we need to do.  Even at an early age, some things are just self evident.  Sometimes, though, a friendly reminder doesn’t hurt.  For our December Wealth Update, this young man inspired me to provide a friendly financial reminder of the things we should do, the things we need to do to secure our financial future:

Add to our savings on a regular, disciplined schedule.
When is the best time to start saving more?  The simple answer, the one that everyone who asks that question already knows when they ask it, is now.  Why, then, do we continue to tell ourselves that we’ll start next month, or next year, or after the next raise, bonus, life-event etc?  Because it’s easier.  It may be easier, but we know better.  How do we overcome the instinctual behavior of putting off building our wealth?  I recommend automation.  Uncle Sam figured this out years ago – in 1943, to be exact, when it was realized that mandating withholding from paychecks was a much more reliable way to force the populace into paying taxes.  I’m still amazed when I hear people talking about how much money they “get back” rather than how much money is taken out of each and every paycheck.  The government has maintained this system because (for their purposes) it works.  In my view, the best time to save money is before you psychologically even know you have it.  That’s why, for my non-retiree clients, I recommend automated transfers to savings and investment accounts on the same day the paycheck comes in.  Employer retirement plans of course accomplish this goal as well.  If you never see the money, you’re much less likely to find a way to spend it.  And, as we all know, saving like this on a regular basis really does add up.

Remember that our neighbors don’t always tell us about their failings.
We all have friends or neighbors or co-workers who don’t hesitate to tell us about the 356% return they made on XYX stock last month, or about the clever options strategy they’ve perfected, or how they bought gold “right before the crash.”  And all of those statements, even if sometimes exaggerated, may be true.  And it may be that that person truly is a financial genius.  But we know better, don’t we?  The simple truth is that when that same friendly person loses his shirt on ZZZ stock, he likely keeps it to himself.  And that’s ok, it’s very much human nature, but it’s worth keeping in mind when the adrenaline-hungry part of our brain tries to tell us we’re missing out on some instant-riches opportunity.  The next time you hear one of these remarkable stories my advice is to smile, but not to try to replicate it.

Plan for purchases, and purchase with confidence.
There are some purchases that we know are coming.  A 20-year roof is called that for a reason (and no not because it takes 20 years to pay for it.)  Vehicles, paint, and heat pumps all have a life expectancy.  Why, then, is it an emergency when one of them suddenly needs replacing?  Enter our earlier thoughts on automated savings.  Savings can (and sometimes should) be specific.  “This is my car savings fund.”  What a wonderful thing to be able to say.  If you can pay a dealership for 60 months for a vehicle, then why can’t you pay yourself for 60 months for a vehicle instead?  You can.  Predictable purchases aren’t emergencies; they’re predictable purchases.  Secure your financial future by planning for them.

decorateDecorate for Christmas (or in other words, don’t forget to celebrate today)
It’s easy, sometimes too easy, to get caught up in the commotion of whatever it is we’re planning for, thinking about, fretting over, or tasked with that we just plain forget to enjoy this journey we call life.  Last week, it took a three year old to remind me that sometimes it’s the simple things that can bring joy to our lives.  It took me ten minutes to put up some Christmas decorations and now every time I walk up the stairs to my office and see them I smile because I took the time to celebrate today – something I knew I should have been doing to begin with.

Here’s wishing you and your family a very Merry Christmas!
John N. Hall, CFP®
Lynchburg Wealth Management