Personal Finance Planning [Fearless vs Courageous]

By Sarah Carlson, CFP®, CLU®, ChFC®

How are you approaching personal finance planning this year? This year has opened with a bang with so much challenging news between inflation and the economic drama, crawling back from a worldwide pandemic, and now we have a war in Ukraine. None of us can escape the updates on negative news. 

Investors are currently on a wild ride watching their accounts fluctuate daily, and hope of a secure financial future does not seem as inevitable. Everyone feels discomfort when dealing with changes, and many of us are looking for the courage to endure and deal with them.

We all have a loss aversion. In a turbulent financial market, you can develop an attitude of being financially fearless or being financially courageous to help navigate it. So what is the difference between being financially fearless versus financially courageous?

Being Financially Fearless 

This is going with the crowd, taking actions based on emotion. People who throw caution away often do not understand the risks they are taking with personal finance planning. It could be fueled by greed or excitement in gambling. Or this can mean going all to cash because you think you know better and can then time the market for your financial future.

Being Financially Courageous 

This is learning to be comfortable being uncomfortable. It takes courage to look at other points of view and different perspectives on the situation with regard to personal finance planning. It isn't easy, but the key to a better financial future is to take the emotions out of the decision at hand and instead come up with a thoughtful response.

Being fearless is reacting versus being courageous is deciding how to respond. When it comes to investing, we all have an aversion to losing, and emotionally it hurts more to lose money than it emotionally feels good to make money. 

So how can you be more financially courageous and not get harmed from being reckless which will affect our personal finance planning?

1. Assess your time horizon. When will you need your money for our financial goal? If your fund is for retirement and you have twenty years to retire, you can have a lot of volatility in your portfolio, for you will not be pulling those funds out for a while, and historically we know time can help reduce risk.
   
   Versus, if you are retiring in two years, a market pullback could put a permanent dent in your retirement plans. Two years is not enough time to recover from a bad market.
   
   
2. You need an overall strategy and one that you can revisit in a difficult time to hold yourself accountable to your goals. It is worth getting professional help in developing a plan and with someone you can consult when you are worried.
   
   A skilled professional can help save you from yourself in a challenging market.
   
   
3. Be clear on what your advisor can do when you work with a professional. How much experience they have had, and what resources do they have when you need help? It is worth making sure your advisor has a professional record that is acceptable to you. You can check out your financial advisor at https://brokercheck.finra.org.

You must have a fundamental understanding of what you invest. Your advisor should explain in terms you understand what you own and how it fits into your personalized plan. As part of a team of Spokane financial advisors, we understand the markets and history similar to the current drama.

Conclusion

Are there specific terms and conditions to getting your money out?

It is normal to have a certain amount of fear when things get tough, and fear is valuable information to help you process your surroundings. Market volatility is usually economic unrest. 

The more you can respond with a thoughtful reaction versus reacting with an action, the more you will come out ahead in getting to your financial goals and keeping your emotions in check. Be sure to focus on the things you can control versus those you don't. A plan will dramatically help your financial future.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.