Today’s Practical Planning Tip will cover my outlook for the year, continuing on the same theme from the past few days.
AVOID loss aversion: Humans tend to experience the pain of losses more intensely than they feel the pleasure of gains. I see this throughout the year after any market drop. Given the market’s cyclical nature, drops are normal and expected to occur several times a year. However, even if a client is still in the black, once they see their funds drop below their latest high point, they begin to panic.
It is said that an investor’s “loss aversion” bias has their desire to avoid loss almost three times as powerful as their pursuit of pleasure. Therefore, clients’ emotions tend to get triggered when anything negative occurs. To stay on track to achieve your goals, it’s essential to have systems in place within your finances to avoid the normal human emotion of overreacting when your portfolio inevitably falls in value. There is a high likelihood that your portfolio will drop at some point in 2024. Don’t panic! This is normal. Stick with your strategy and you should be able ride out the temporary market turbulence.