Don't Worry, We Are All Emotional Investors | Series 4.7

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Welcome to the EnjoyMore30s Family Finance

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podcast. The only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

Joseph Okaly: 00:00:16

Hello, and welcome to the seventh episode of the

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Your Major Money Misnomers series. As always, if you like

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what you're hearing, please make sure to subscribe or follow us

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on Apple podcasts or wherever you listen. Clicking that star,

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leaving a review, it really really does help other young

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families out there find us.

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So last week, we discussed Long Term Disability...MORE Likely to

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Happen? that covered what i actually worse than deat

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financially and that is lon term disability as well as what

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you needed to know about protecting yourself against it.

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So really make sure to check that out if you have not

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already. Today our title is Don't Worry, We Are All

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Emotional Investors, where we are going to discuss why

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emotions tend to play such a big unwelcomed part in investing and

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what you can do to try and not have it really work to your det

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iment. So as I got older, I wou d up turning into a person who

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doesn't have much of a sweet too h. Some of that was just mor

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of a healthy eating kind of a f cus but things like ya know cake

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cupcakes, icing, I actually nev r enjoyed them really at any poi

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t in my life. And that, you kno , makes me a big weirdo. Right?

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o if it's something that sal y though, I'll gladly partake

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o complete excess. So that brin s me at least a little bit ba

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k towards normal. Anyway, despi e that, there are some notab

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e exceptions when it comes o sweets for me that still exist

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Ice cream from m hometown, Denville Dairy an

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frozen key lime pie. Now whil I'll go to my grave with th

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strong and correct, I might ad , assertion that Denville D

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iry makes the best ice cream ou of anywhere on the planet, whic

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is a bold statement, it is just ice cream. The frozen key lime

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pie may also sound a bit kin of specific. And the reasons

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for both continuing past my s eet tooth phase, let's say is

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the emotional attachment that I ave for each of them. Denville D

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iry was the place we always ent growing up. So when good th

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ngs happened, we went to Den ille Dairy. We had ice cream

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akes there for our birthday , a lot of birthdays, I still d

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drive out and get another one. nd I fully realized that a la

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ge part of that nostalgi emotional connection I have is

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hat drives that. And the same thing goes for the frozen ke

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lime pie, except instead of childhood connection, it's the

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treat that Lauren and I ate on our anniversary trip

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own in the Florida Keys when we found out she was pregnant with

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our first child Avery. So remember exactly where I was,

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remember going out and celebr ting like that. I know that

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I'm being influenced by my emo ions but in this case, it's

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okay. It feels you know, feels g od. What you need to know thoug

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when it comes to investing is t at we're also extremely emotiona

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. But it often doesn't really re ult in a good feeling. Making

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r losing money makes us emoti nal and when we get emotional,

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we tend not to take the best app oaches. As we discussed in t

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e first series 1.6 Investments hould Be Boring, we recommend

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preading out your money in ifferent areas all the time

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because while every market a ea will generally go up over

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ime, in the short term, no one i really sure what area is goi

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g to do the best. So essential y, what does the best this

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ear may likely not do the b st next year. And that make

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sense, right? However, when you look at your account, and fund A

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went up 20% last year and fun B went down 5%, I'm guessing y

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ur first reaction won't be to ay, 'hey, let me take money o

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t of that fund A which was so great and put into fun B th

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t kind of stunk?' No, of course ot, you're much more likely t

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say 'well, you know, forget und B, let's put it all into fun

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A! Let's go!', right? So you can see there's easily a discon

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ect between the logical "every year a different area tends

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to lead" with the practical "ta e money out of the ones that d

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d the best and put into the ones that did the worst" action off o

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that, because your emotions ca quickly get in the way. And you

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may be surprised to hear ther 's actually a whole invest

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ng approach that's called he odd lot theory that's base

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on doing exactly the opposite f what individual or wha

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they call retail investors do, s opposed to what institutional

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ype investors are doing. So when normal people buy stock, they do

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't buy in a flat, even kind o a quantity. They might b

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y 17 shares or 31 shares, what ver they can kind of afford is

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hat they buy. And it comes out t this random kind of odd num

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er. Institutional Investors n the other hand, they buy

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n what are called round lots. o say 1000 shares 2000 sh

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res. So with this approach essen ially looks at is what are all t

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e 17 and 31 share type transac ions or odd lots. What are the

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doing? And let's simply do the opposite. Because we're goi

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g to go ahead and assume that normal individual investors are

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robably doing the wrong th ng. So, where the emotions t

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nd to be the most debilitati g though, is when there are

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arge drops in the market. You he r about it on TV, the radio, the

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bring in experts about how fas the sky is going to fall. My fa

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orite though, is the pict re of the disheveled stockbroke

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on the floor of the exchange you know, you could picture h

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m kind of pulling on his face wi h just papers flying everywhe

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e behind them, they, they see to always have that

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ne ready to go. This environment though, where things are

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ropping, it makes it exceedingly difficult to not act emotiona

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ly. What makes it so bad here, t ough, is that if you say sell af

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er everything drops, because y u're afraid, so fear and emoti

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n, and you're afraid that it' going to drop more, you h

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ve put yourself in a position th t you can't recover now. You c

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n't regain what you lost if ou aren't invested. What you ca

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do, though, to try and counte act this is to plan emotionally

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ahead of time, both for the da to day and the big drops. It's

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almost assured that there will be another and more likely man

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of these events in your li etime. Historically speaking, t

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ey happen every six years or s on average. So the 12 years be

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ween 2008 financial crisis and 2020's COVID was actually

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uite a large spread. So the q estion you should be asking you

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self is really more, 'wh t are you going to do emotional

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y to prepare yourself for whe , not if, the next one comes?'

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he first thing to know, you will most likely be emo

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ional. Just like I know emotio s are influencing me to drive

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out and buy that Denville Dai y birthday cake still. So don'

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tell yourself, you'll be les emotional next time, you a

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most certainly will. It's going o be a new situation with new

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causes. Same drop, maybe. But it s very, very difficult to no

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act emotionally. So just expect ng yourself to not be the same

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xact way in this upcoming scenario, whatever it may happen

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is probably not a likely way hat it's going to unfold. Second

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is you shouldn't have any money nvested that you're going to nee

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in this next, say one to two ears anyway. So remember, you ha

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e years of time for these i vestments to come back up again

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when you're going to need them. ny short term money again s

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ould never be put into an investment. Next, whether thr

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ugh an advisor or on your own hrough an allocation type

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of a fund, having someone outsid of yourself managing the fund

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on a mathematical basis making those rebalancing decisi

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ns so selling areas that have one well and reinvesting into a

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eas that haven't done as well lately removes your emoti

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ns as having an input in thos day to day. Lastly, for thos

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particularly big drops, remem er what makes the market go up

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and down. In series 2, 2.5 to be specific, we talked about S

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ocks Lead, Don't Follow and h w the stock market is a leading

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ndicator. Investors are acting on what they think will happen a

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d if they have no idea what wil happen, so if there'

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a very high degree of uncertain y, things tend to drop very

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apidly. So think COVID before we knew what it was or had

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much of a plan, or the financi l crisis back in 2008,

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before we knew how the governmen was going to respond. Once inv

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stors believed they had some i ea of where things were going a

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ain, you started to

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So as a recap for today, realize that you're not at all alone,

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when it comes to mixing emotions with investing. Everyone out

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there does that to some degree. Those who manage it, though more

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successfully are the ones who set up a proper system and

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mindset,. They acknowledge it will almost certainly happen

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again, multiple times over, they only invest funds they are not

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going to need for the next few years. And they use an outside

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resource whether through an allocation fund or a diversified

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program through an advisor. So they're not in direct control

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for emotional decision making. Finally, they realize that

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uncertainty tends to be the biggest market driver and as

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that changes, so things become less uncertain, the direction of

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the market will likely change as well.

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So as always, thank you very much for tuning in today. If you

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are able to implement what we're talking about in this episode,

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or any episode that's just fantastic. You have less to

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worry about than before. You can just focus on what we're all

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wanting to do, which is enjoying life. If you are wanting help

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with these things though, or you have questions you need help in

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clarifying, check out the Ask Joe section on the show's

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website www.EnjoyMore30s.com. That's EnjoyMore30s.com and if

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you did enjoy today's episode specifically, make sure to again

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jump on, review, follow, subscribe on Apple podcasts,

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wherever it might be. There are literally millions of young

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families out there I'm trying to reach and help just like you.

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We've now come to the final episode already of this series

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and it's called Advisors Aren't Hershey Bars where we're going

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to discuss what you need to know about the many different types

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of advisors out there. You might be surprised about how many

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differences there can be and what you can do to make sure you

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find one that's a good fit for you if you are wanting one.

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Until next week thanks for joining me today as always, and

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I look forward to connecting with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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Registered Investment Advisor member FINRA/SIPC.