Why Investors Should Worry & What About

Worry is not a desirable state of mind. It increases stress, can cause us to get emotional, and we could even lose sleep by worrying too much. Like many things in life, moderation may be the key. Not worrying about anything means you may not be anticipating and preparing for the future. Worrying too much can induce significant anxiety and stress, and may very well result in making emotional, thoughtless decisions. A moderate or reasonable amount of worry can be beneficial to our livelihood.

The Positives of Worry

We worry about something when we care. We worry about loved ones. We worry about our safety. And we worry about our finances. These worries help us think about situations and plan accordingly. It helps us anticipate potential hazards and make the best decisions today to obtain the most desirable outcome. We wear seatbelts when in a car and put on a helmet when riding a bike or motorcycle to give us greater odds at getting to our destination safely.

When we worry about money, we think about how to avoid running out of money or having to to live an undesirable lifestyle. This causes us to ask questions such as, “how much should I save today and for how long to live my desired retirement?” These types of questions drive financial planning…”what do I need to do today to obtain my desired outcomes?”

Whenever we plan for the future, due to uncertainty, we need to make assumptions about our environment. Many of these assumptions are best guesses and often the result of what has historically occurred – or what is most probable to occur in the future, known as the “base case.” But these assumptions are often beyond our control. We can’t predict them with complete accuracy and we can’t control them. Unfortunately, many investors worry about things outside of their control and our predictive abilities, which is both unproductive and stressful.

What Investors Should Worry About

Rather than worry about who will win the election, when interest rates will come down, or when the next recession will hit (all of which are unpredictable and uncontrollable on an individual level), it is better for investors to worry about those things they can control. After all, what is the purpose of worrying about something we can’t control, unless we wanted to unnecessarily punish ourselves with greater anxiety and stress? Worrying about an uncontrollable and unpredictable event may feed us with the illusion of control. But that is nothing more than an illusion.

The greatest thing investors should worry about is how they will respond to future market and economic events. What will the investor do when the market drops 30%? What will the investor do if the “wrong” president is elected? If the investor goes to cash now, what will signal it is time to get back in? And what if the market, despite your strongly held opinion, continues going higher? At what point will the cash investor realize the train has left the station and they aren’t on board?

Reflective and introspective questions of how we may act (controllable) is one of the best on-going practices for investors. It keeps them focused on worrying about the right things and encourages thoughtful planning – which is one of the main elements of financial success.

– JAY