The "R" Plan - 5 Steps to Fight Prediction Hubris, Ep #114

No one can argue that the stock market has been tumultuous lately. During times of market uncertainty, many people tend to make predictions about what will happen. As people make these predictions over time the stakes get bigger and bigger. It is important to fight against your predictive instincts surrounding the stock market so that you don’t become overconfident. Listen to this episode to hear what steps you can take to fight this prediction hubris. 

Wealth isn’t determined by investments selected but by investor behavior

In these times of stock market uncertainty, it is even more important to make good financial decisions. The instinct to make stock market predictions can be strong. The more predictions one makes, the more overconfident they become. This is why we have come up with the “R Plan” to fight this prediction hubris. Listen in to hear how the 5 R’s can help you make better investment decisions. 

The R plan  Remember your past predictions. Think about the predictions that you made over the past few months. How did those turn out? Do you remember that overwhelming fear we all felt in March? Do you remember 2008? How about the tech bubble? How did your stock market predictions turn out during those tricky times? Regret - The decisions you make in the short term can have a big impact on your long-term wealth. The day to day swings can be huge when the market is volatile. Retirees often feel that they don’t have the time or ability to make up for losses and many decide to sell and flee to the safety of cash. But deciding not to ride the wave can lead to serious regrets.  Resilience - We often forget how resilient the stock market is over time. People don’t acknowledge the fact that stock market declines are always temporary and that they advance 75% of the time. It’s also good to remember that bear markets are shorter than bull markets. Declines are temporary but gains are permanent Be more conservative if you are uncomfortable with the thought of losing half of your asset value. Diversify - we may have mentioned this a few times before. Hire a professional an investment planner as well as a financial planner Consider all your options Implement an investment strategy based on your financial goals Review - When markets are volatile take the opportunity to reflect on your portfolio. Think in dollar figures rather than percentages to make potential losses more real to you. Consider these tips as you review your portfolio Reward - You will gain confidence over time. The market always bounces back. Returns are strongest after the steepest declines. Stick through the rough periods to get to the rewards Resources Worst Investing Dilemma - Blair Belle Curve Guide to Market Recoveries – Capital Group Investors Approaching Retirement Face Painful Decisions - WSJ Investing in Uncertain Times – Ally Bank When Stocks Are In the Red Don't Make This Mistake - CNBC Episode 27 - A Financial Advisor's Worst Investment Mistakes Outline of This Episode [2:06] How can you fight against your instincts of making predictions? [7:04] The decisions you make in the short term can have a big impact [10:21] The stock market is resilient [14:54] Tips to fight stock market worry [20:54] Focus on the reward Connect With Chad and Mike https://www.financialsymmetry.com/podcast-archive/ Connect on Twitter @csmithraleigh@TeamFSINC Follow Financial Symmetry on Facebook Subscribe To This Podcast Apple Podcasts Stitcher Spotify Google Podcasts