The term dread disease
is sometimes used to describe certain critical illnesses such as cancer that impact the length of your life. This term however, might also apply to financial behaviors that have a critical impact on your lifestyle over time.
I am increasingly convinced that most of the investing public suffers from some financial form of dread disease. The most common ‘financial cancer’ is manifested by a severe overreaction to anything that is not positive in the financial markets. Resiliency is the most needed, yet rarest, investing trait.
The presenting symptoms of this financial dread disease are a rapidly building distaste for anything associated with volatility and a sense of panic about the state of the stock market. The proximate cause might be something relating to politics, the economy, or just an overall sense that ‘this time is different.’
In my experienced opinion, the underlying reason for financial dread disease is utter confusion about the difference between a financial plan and an investment portfolio. A portfolio is not a plan; rather it’s a mechanism for funding the plan. If you invest without a plan, you really aren’t investing at all…you are speculating.
The financial plan or, more specifically, the process of financial planning is the cure for financial dread disease. The reason the cure doesn’t receive the same level of attention as the disease is because Wall Street makes money selling ‘snake oil investments’ that, at best, mask the underlying disease.
Financial planning is about money; Financial planning is about priorities. The essence of financial planning is about connecting your priorities with your money.
Panicking, speculating, and guessing about short-term market events are all polar opposites of financial planning.
Negative interest rates, pending recessions, high stock valuations, and dozens of other distractions don’t have anything to do with your financial plan. However, if you allow financial dread disease to take hold and ‘panic sell’ your way out of a globally diversified portfolio, then these things will have something to do with your plan.
Build your financial planning framework in a way that supports and sustains your lifestyle. Only then should you invest. Start there.
Related: Will Free Trading Help Individuals Become Smarter Investors?