3 Ways to Avoid Toxic Financial Advice and Rash Decisions

The following is a guest post from Jason Labrum, founder and president of Labrum Wealth Management.  Jason is also author of the upcoming book Financial Detox: How to Steer Clear of Toxic Advice, Achieve Financial Independence and Manage Your Wealth for Maximum Impact. He is a fiduciary and holds a Series 65 securities license and a life and health insurance license in California.

With the growth of the internet, social media and TV, investors are constantly tempted to lose focus on what they can control and instead focus on things out of their control. High-strung investors fret over every dip in the stock market. They wonder who will win the next election and what that will mean to their investments. They hear about a crisis overseas or one here at home and ponder whether to abandon their carefully planned investment strategy based on the fear and uncertainty they feel as a result of the latest news reports.

William Iven

Take a deep breath.

You shouldn’t change what you’re doing just because of current events. I often tell my clients, ‘I forbid you to freak out and stress out about the market. Turn off the news, turn off the TV and go enjoy the aspects of your life you work so hard for; family, friends and your passions.’

Avoid the Toxic Atmosphere

To avoid getting caught up in the toxic atmosphere and advice created by a 24-hour news cycle, a savvy investor needs to:

• Stay disciplined. The investment returns that the market delivers can be phenomenal if you stay focused. The problem: Investors react to media hype and make behavioral blunders based on emotional decisions rather than fact-based reality. One key factor in investment success is learning how to maintain discipline and stick to the goal oriented financial and investment plan that is created for them.

• Know your volatility tolerance. It’s important to understand your tolerance for volatility when you’re building your portfolio. Volatility is not necessarily risk; it’s an expected part of investing. However, your behavior can turn volatility into risk if you make decisions based on fear or panic. If your goal is simply to save for retirement, and you would rather avoid the stress of watching market swings, then a strategy with a 5 percent volatility portfolio may be perfect, he says. If you have more ambitious goals (such as leaving money to heirs or giving to charity), and volatility doesn’t give you the jitters, then a higher percentage of volatility may be appropriate. The key is to find a balance that allows you to achieve your financial goals, but at a level of volatility you’re comfortable with.

• Listen to your advisor. People are prone to make emotional decisions with their investments. A good advisor, preferably a fiduciary advisor, should be able to help you avoid acting rashly and maintain the discipline you need to be a successful investor. The fiduciary advisor should be able to look at the situation without the impassioned bias you bring to it, and help you make sure you don’t panic and that you stick to your financial plan.

Final Thoughts

Perhaps the most important thing is to educate yourself about finances and investing. You don’t have to know everything and you don’t have to do this all on your own, but you do have to know enough about the financial system to not get taken advantage of. That’s the only way to make smart choices that will make a real difference in your life.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

2 Comments

  1. Thank you, Jason. Very sound advice. For me, getting rid of TV has done the most to improve my investing skills. I don’t think the news, whether we’re talking about everyday news or financial news, is designed to make us more informed. It’s designed to scare the crap out of us. And that’s no good if our goal is to remain in the market and let Mr. Market do his magic over the long haul.

    • No doubt following the often manic movements of the market on a daily or weekly basis will drive you crazy … and likely lead to lower returns. The best approach is to develop and execute a plan with long time horizons.

      Thanks for stopping by and sharing your thoughts, my friend.

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