Keep Your Emotions Out of Your Portfolio


This blog post was originally published on March 16, 2020. It was updated on August 8, 2022. 

If you’ve been watching the markets lately, you may have felt your heart pounding and muscles tensing. “Fight or flight” is a natural human reaction when one encounters a high-stress situation. With the current volatility in global markets, the dual threat of COVID-19 and monkeypox, the ongoing Russia-Ukraine war, sky-high inflation, rising interest rates and other factors impacting the economy, it’s understandable why many investors may be inclined to follow their emotions right now and pull back or exit the market entirely. 

However, following an emotional investment cycle sparked by reactive decisions may actually lead to unintended negative outcomes. While fight or flight can save you from a bear, it’s not what will get you through a bear market.

“Unfortunately, the body can also overreact to stressors that are not life-threatening,” according to the Harvard Medical School, “such as traffic jams, work pressure, and family difficulties.” Add to that list: market volatility.

The 2008–09 global financial crisis offers an example of how an emotional cycle can affect an investor’s decisions. After experiencing fear during the 2008 downturn, some investors fled the market in early 2009, just before the rebound began. They locked in their losses and then experienced the stress of watching the markets climb.

It’s to be expected that the heightened uncertainty may be causing anxiety about your portfolio and the future. In times like these, remember that if you have worked closely with your financial advisor to determine an appropriate investment strategy and develop a long-term financial plan, you should be prepared to weather the market’s ups and downs.

Your portfolio is the custom vehicle assembled to achieve your long-term wealth goals. In addition to U.S. stocks, it is likely composed of high-quality bonds, non-U.S. stocks and other diversifying assets to act as shock absorbers to not only dampen short-term volatility but help prevent harmful, emotionally based investment decisions. And by design, bonds and other diversifying assets generally experience positive returns or less severe declines than U.S. stock markets during a downturn.

In today’s market environment, it is more important than ever to remain disciplined to the long-term investment plan that you put in place with your advisor. When your portfolio was established, it was designed with the expectation that markets would experience sizable declines along the way to long-term gains.

It might be days, weeks or possibly months before the fears related to the current threats subside, and the news over that time may get worse before it gets better. You may feel like abandoning your plan and parking your investments in cash until the outlook is clear. However, markets can move up just as quickly as they move down, with no clear indication of when you should get back in. Missing these up moves can be the difference between achieving your most important investment goals and failing to reach them in the time you planned or even altogether.

During volatility, take comfort in knowing that history has shown markets are resilient and continue to grow over time, despite short-term declines. Further, the world is providing enough reason for concern right now; your portfolio doesn’t need to be another one. Instead, turn your focus to what drove your long-term wealth goals in the first place—family, friends and those in need.

If you have any questions about your investments or want to discuss your financial planning needs, contact me or another Kaufman Rossin Wealth professional. We are here to help you reach your financial life goals.

Charles Sachs, CFA, CFP®, is a Chief Investment Officer at Kaufman Rossin Wealth, LLC, a Registered Investment Adviser.

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