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Dollars & Sense: Do You Have A Relationship With Your Investments?

It goes without saying that most of us discuss the stock market as if it was a living, breathing thing that has feelings and emotions. It’s funny when you think about it, not only do we think of the “market” as a living feeling thing, it is often discussed in terms of human emotion; “The market didn’t like what was happening in China so it went down today” or “the market is not moving because it didn’t like what the Federal Reserve Board is doing with interest rates”. Whether you want to acknowledge it or not, as investors we do have somewhat of a relationship with our money and investing. For starters, most of us are really ticked off about the market and how it is behaving so far this year.

So, what kind of relationship do you have with the market and your investments?

Do you have a turbulent relationship? At the end of a 200 point downside, do you feel unsettled and confused? Turbulence would be best left at 40,000 feet; however, it happens to be one of the most common characteristics for those that invest in the market. Maybe the market is having a bumpy ride and you can’t breathe until the volatility settles. Would you want a long term relationship with someone who exhibited turbulent behavior? If that doesn’t bother you, then maybe it’s okay to have the market in your life. On the other hand, if you are losing sleep and glued to CNBC, maybe it is time to re-evaluate your risk tolerance.

Maybe you have a love hate relationship with the market and your investments? You love them when they are doing well, confident and moving upward and you dislike it when they lose value. This kind of relationship is difficult, because you understand the potential long term rewards of being in it for the long-haul. It’s like exercising, we know we should do it and it often comes with aches and pains in the beginning but over time, it makes a big difference in overall health.

Some relationships are “good on paper”. They have all the right criteria, but lack the spark needed to move forward. You receive your investment statements and look at the pie chart that shows your asset allocation. Most 401k statements actually show you how your investments compare to someone your age and give a projection of future income. However, when you look at your account values, they don’t seem to be increasing enough and you wonder why? Seek advice from a financial advisor who can help you look at the big picture and make sure that the diversified pie chart goes beyond a stock and bond allocation – maybe all of your stock investments are large cap, maybe they lack international.

Maybe you don’t feel you have a relationship with the market and your investments, however, you feel like the market actually knows you. For example, “every time I invest the market goes down”, or “I know I won’t make money, I never do”. This could be construed as a negative or pessimistic relationship; you already feel the loss before the first date! Investing is riddled with emotions. Accept this and, as with any conflicting situation, understand the parts that are out of your control (the market) and manage the things that you can control (your emotions).

Dalbar is a company that studies investor behavior and analyzes investor market returns. Its studies consistently show that the average investor earns below average returns. According to the Dalbar Study, for a twenty year period ending 12/31/2015 the S & P Index averaged 9.85% a year. For that same time period the average equity fund investor earned an average of just 5.19%. Why? The problem is human reaction, whether to good news or bad news, investors overreact. This emotion causes illogical investment decisions. This tendency to overreact can become even greater during times of personal uncertainty, near retirement or for example, when the economy is bad.

If we could only control our emotions when it comes to investing. Helping you to keep your emotions in check is one of the many responsibilities of your financial advisor. They should be there to talk you off of the bridge and make sure you stay on track for your future. This doesn’t always mean staying the course, your advisor needs to understand your tolerance for risk, and unfortunately, when the markets become volatile so do our emotions.

Roberta L. Nestor is a financial advisor practicing at 491 New Haven Avenue in Milford, CT offering retirement, long term care, investment and tax planning services. She also offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network – a member FINRA/SIPC and a Registered Investment Adviser. Fixed insurance products offered through Nestor Financial Network are separate and unrelated to Commonwealth. Commonwealth Financial Network or Nestor Financial Network does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation. Roberta can be reached at Nestor Financial Network, 203-876-8066 or roberta@nestorfinancial.com.

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