Hi everyone, thanks for joining me today. Kyle Davis here, owner and founder of Integrity Financial Group here in Orlando, FL. Your retirement planner for entrepreneurs and small business owners. As of April 14, 2020, 1,844,863 cases of COVID-19 were reported, with the death toll reaching 117,021.1 With the number of cases and deaths rising every day, it’s hard to not feel stressed or anxious about the situation. Aside from the concerns for our health, the financial toll of the Coronavirus pandemic is really easy to see all across the globe. After a strong 11 year bull market, the stock market entered bear market territory on March 11, 2020, with the market fluctuating in an unstable state since. Volatility seems to be the word of the month, but as an entrepreneur it’s important to remember what your biggest focus should be right now: your personal economy.
There's no doubt that this is an emotional time for everyone, that much is obvious if you just look at your social media feed or head to the grocery story. Face masks and gloves all around! But one of the greatest dangers to your wealth may not be the market’s dips and dives, it may be the temptation to make emotionally charged decisions regarding your wealth, which more often than not is ill advised. Below we’re discussing the impact behavioral finance can have on your investments and business, and what you can do about it.
What is Behavioral Finance?
In a perfect world, the stock market would be predictable, right? Philosophers and economists have studied the markets for decades, even developing theories and models to explain and predict trends and responses in the market. The problem? Money, and the way we interact with it, is anything black and white. We're only human and it's sometimes hard to make objective decisions regarding our own money. Whether we realize it or not, we are influenced by subconscious biases and, especially in the face of a pandemic, and what we read and hear on the news.
This can also help account for unexplained phenomenons in the market, such as the “January effect,” an increase in stock prices that tends to occur at the beginning of the year.
How Behavioral Finance Impacts You and Your Clients
Behavioral finance effects not only your retirement planning, but pours over into your business as well. It might be tempting to shut down, lay off, or pull back during this time, even though your personal economic situation might not reflect the need to do that. Even the most disciplined entrepreneur could be having a tough time staying strong in the current economic climate. With new information about market changes and the spread of COVID-19 flooding social feeds and taking up entire news cycles, no one is immune to hearing about it. This goes for you and your clients.
When you hear on the news that the market has plummeted, people's first instinct is to tense up, be cautious, and hold off on making decisions. This is a gut reaction, fueled by the short-term fear of a market crash. However, now’s the time to remember the truth about your retirement planning and your business: they’re meant to be a part of your long-term financial goals, and not be judged solely based on short-term performance.
When in Doubt, Call Your Advisor
To help avoid making impulsive, emotionally charged decisions about your money, talk to your trusted financial partner. Find reassurance in their calm demeanor and big-picture mentality. The market is meant to cycle, and using strategic, logistical planning is one way you can stay focused through these uncertain times.
It’s important to remember that your advisor is meant to act as the buffer between your emotions and your financial decisions. With shifts in the market, now may be a good time to reallocate certain assets. This decision, however, should be based on facts, logic and experience, something your advisor can help you with.
I'll be the first to admit, 2020 has certainly been off to a rocky start and as of this morning, the end is not yet in sight. However, as you work to keep your loved ones safe from the spread of COVID-19, remember to keep calm, stay rational and remain informed. We are here to help you stick to your long-term goals, so you should always feel free to reach out with your concerns and questions.
About the author: Kyle A. Davis is a Chartered Financial Consultant® , Chartered Advisor in Philanthropy® , and president of Integrity Financial Group in Orlando, FL. He is a Florida native and an advocate for financial literacy and practical money education. When not assisting clients in planning for retirement, he creates educational videos on financial wellness on his YouTube Channel - https://www.youtube.com/user/financialplannerinfl
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.