Gregory S. DuPont
You Need to Take Emotions Out of Investing
A year ago during this time, the market was in freefall. People saw their retirement savings plummeting and were panicking, rightfully so. However, now that the market has bounced back a bit, many people are starting to forget how scary it was to have their lifesavings and investments in jeopardy.
As we look at the stock market in 2021, you might be led to believe that businesses are doing much better than they actually are. Many individual investors are putting a large chunk of their life savings into stocks, fueled by overconfidence and the fear of missing out on big gains. Many are not taking into account the long-lasting impacts that COVID-19 still have on our economy, and will continue to have. While the economy would have certainly crashed harder in 2020 if not for government aide, continually printing stimulus money is causing the national debt to skyrocket in an unsustainable way. Eventually, the government will want that money back. Taxes will likely sharply increase in the next few decades.
Many individual investors believe that the market will only continue to grow and are making risky investments because of it. We’ve seen a sort of cult-like mentality surround investing recently, specifically in the stock market through the “buy and hold” game. For example, the GameStop stocks trend on Reddit. Many investors were posting their gains screenshots, bragging about how much money they made. This sparked additional people to invest, and lead to a plague of overconfidence. GameStop was not the only company wildly invested in though. As multiple users found good stocks to invest in and posted their gains, they garnered a following. The belief that their one good decision would certainly lead to many more is a mistaken assumption. People were risking their entire lifesavings on these trending stocks, and while there was a period of time where great gains were had, there was also a period where people lost tens to hundreds of thousands of dollars. It’s not just young people that invested either. Older individuals nearing the end of their savings journey also risked it all, leaving themselves no time to recover from any potential losses. Many investors believe they have nothing to lose, that the government will continue to bail out the public like they did during the height of the COVID-19 pandemic, and that their losses are just temporary. While we can be thankful that the government has helped our economy bounce back in the past, the assumption that it will always be this way is simply untrue. The national deficit is quickly approaching 30 trillion dollars, and according to the CBO, is on track to double in the next 30 years. At some point, the government is going to want that money back through heavy taxes.
Instead of risking your retirement savings on individual stocks, it’s important to take action to protect your money against future economic hardships. If you would like to continue investing and gambling in individual stocks, you must educate yourself on the market as best you can and know how the economy can affect you and your needs specifically. You should also only gamble a small portion of your money that you can afford to lose. On a regular basis, take your winnings off the top and put that money into something less risky and better protected from economic hardship. A fixed index annuity or an indexed universal life insurance policy are both great options. Another great option is to have a tactical money manager handle some of your portfolio for you. Look for somebody that has proven systems in place where algorithms run the show, not the head or heart. These actions put you in a defensive position, allowing you to take advantage of more opportunities.
Don’t let your emotions take over your investments. To protect your lifesavings and estate from future taxation, you must take protective action. If you need investment advice, don’t hesitate to call our office at 614-389-9711.