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Three Mistakes Most Investors Make in Scary Markets

Three Mistakes Most Investors Make in Scary Markets

November 22, 2022

Markets continue to be volatile. If you are like most people, you find yourself thinking . . . “What should I do?” Since the times are tricky, it really feels like you need to DO SOMETHING. The challenge is that human instincts can tempt you to do EXACTLY the WRONG thing.

Below are three pitfalls to keep in mind and avoid.

Chasing Past Performance

Humans are wired to see something and then anticipate what’s next and then act. For example, approaching the watering hole ancient man saw a deer drinking and then saw the deer attacked by a cougar that was waiting for the deer. So, the ancient man is SUPER careful about approaching the watering hole so as not to become cougar food.

Regrettably, in the investment world these ancient instincts, that we all have, can be a real problem. Researchers describe the human tendency to see market trends and to KNOW FOR SURE that the trend will continue, as recency bias. This leads people to invest in stocks, funds, or market sectors that have recently done really well. Statistically, this approach doesn’t go well.

Remember that Warren Buffet has often said that the secret to success is to buy low and to sell high. The trick is that human nature inspires us to do EXACTLY the opposite. 

This is a great spot where the advice of an experienced, highly trained, fiduciary Certified Financial Planner™ professional can be extremely beneficial. If you would like to talk with me about how to manage recency bias, I would love to visit with you. Just follow this LINK to find a time that works for you.

FOMO - Fear of Missing Out

One big challenge of our modern age is that there is a TON of information available. Much of it surrounds you every day. The TV, the radio, YouTube, podcasts, books, and magazines all contain tons of GREAT IDEAS to capture the next big trend. My concern is that most of this communication is driven by some commercial interest. Often somebody is promoting some product as the SOLUTION to the next big problem. This is why I talk about most of the financial media as financial pornography.

It's exciting. It’s attractive. It’s designed to keep you engaged. But, it’s not real. It’s not driven by your goals and priorities. Here is another spot where the counsel of a fiduciary planner can be super helpful. Please call me with the NEXT GREAT IDEA so we can talk about how it fits your goals. I would love to visit with you. Just follow this LINK to find a time that works for you.

Fear of The Big Loss

Research tells us that humans hate loss about twice as much as they love gains. So, most investors tend to remember, and fear, losses much more than they appreciate the long-term growth of their investment account. This can lead to the exact wrong investment choice. If you don’t own enough stocks, you will likely fall short of your investment growth goals. I find a lot of comfort in this illustration.

The summary of this illustration is:

  • Investment in the broad US market has an average 9.4% annual return from 1980 to 2021.
  • Most years you will see a meaningful drop in prices sometime during each calendar year. The average decline during each year from 1980 to 2021 was 14%.
  • In the last 42 years, the market was up for 32 of those years. So, about three up years in every four. 

So, based on this data, if you are investing for 5 years or more, money in the US stock market will most likely grow faster than inflation.

Focus on Things That Matter, That You Control

So, how do you avoid these three financial plan land mines? I would suggest that advice from that highly trained, very experienced, fiduciary CERTIFIED FINANCIAL PLANNER™ professional is a great place to start. A visit with a trusted advisor who is your advocate for your financial goals can go a long way to help you clarify what matters to you and your family. And then you can focus on which of the things that matter, you can control. Then you can make a plan to take action to improve those things.

Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.