Investors can easily find reasons to get out of the market and hide every single day. From the moment you turn on your TV, look at your phone, or turn on your computer, there are dozens of warnings and signals begging you to react. Politics, global tensions, Federal Reserve policies, an aging bull market, and on and on.
The list of possible reasons to run and hide is endless. It is often difficult to remember why you are investing in the first instance: to achieve some level of financial security.
Neuroscience and Investing Science
Neuroscience research has shown that the amygdala, an almond shaped part of the brain in the medial temporal lobe, is primarily tasked with protection. The fear responses, fight, flight, freeze, or appease, are activated within this portion of our brains. These fear responses are fired up from 300-500 times each day! No wonder it’s so hard for investors to stay put.
The extent to which investors can “turn down” their amygdala response leads directly to reducing financial stress. Being an investor is essentially a war between your intellect and your emotions. I recently came across a brief article that explains this simply: The Neuroscience of Building a Resilient Brain.
Noise Gets in the Way
For the most part, what our brains interpret as signals are merely noise. One of the foundations of being able to make good financial decisions is to have clarity.
Noise gets in the way by creating confusion. Adding to this confusion is the mind-numbing array of complex investment products that aim to “solve” specific problems, but only end up pushing investors further away from their goals.
“If it isn’t simple, it isn’t true.”
Famed scientist Richard Feynman said “If it isn’t simple, it isn’t true.” That should provide us a good roadmap for planning finances and investing money. The problem is complexity and complication are purposely imbedded into investments by the sales process.
As a result, it’s easy to become confused. My advice is to remember Feynman’s words the next time some financial salesperson…ahem, wealth manager… tries to sell you the latest, greatest, most complex financial product. Resist!
The takeaway for investors is to recognize why you feel stress when worrying about the day-to-day market. The other takeaway is to recall your reason for investing. Remember that there is a lot of difference between temporary market declines and permanent loss of capital. Start there.
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