Investing is simple but not easy. How to convince your clients over 50 not to sell during times of market stress – it’s about understanding the flight instinct.
#NowMe Episode 4: The Flight Instinct
Ms. Walker: This is #NowMe, a podcast for financial advisors who advise women. Hello. This is Hollis Walker, with Jan Blakeley Holman, director of advisor education at Thornburg Investment Management, and this is #NowMe, a podcast for financial advisors who advise women. Jan, sometimes I’ve heard from friends that they’re thinking they’re going to sell all of their stock market investments because they just get freaked out about the fluctuations in price. What would you say if one of your friends said that to you? What, what would you say if I said that to you?
Ms. Holman: Well, the first thing I’d say is that investing is simple, but it’s not easy. Unless somebody wins the lottery or gets a huge inheritance, the money that they get from working partially needs to fund their goals for the future, and we invest to achieve those life goals, and most of us have goals that span our entire life, so we need to invest for the long term. Now, today, the market may look and feel volatile, but when I talk about the long term, I mean the long term. Let me put it this way. Let’s say we start working and we work for 40 years. We’re going to need to invest little by little over the course of those 40 years, but once we stop working, we don’t have earned income coming in. We need the money to grow for the rest of our lives, so we may now be 60 years old and we may have that money working for us for another 30 years, so that means in some cases we’re going to be investing for 60 or 70 years, so what happens today in the market is not important. Finally, to be a good investor, you have to avoid the instinct that is so primitive, and that is the fight or flight instinct. When we as humans experience fear, and it could be fear of the market dropping 600 points, we have a tendency to want to hit the dirt and get out of there, as opposed to stand and fight, so even though it’s called fight and flight, I’d call it flight instinct. We need to remain invested, and that’s the thing that’s most difficult about being an investor.
Ms. Walker: So specifically, how do women investors resist that fight or flight instinct that comes up when the going gets tough?
Ms. Holman: First of all, they need to understand that investments are more volatile in the short term than they are in the long term. For example, the market may fluctuate dramatically over 1 year, but over the course of 20 years, you’ll probably have an investment that will be up. There have been studies that have been done on this. Greg Davis is one of those who studied it. What he found was that if you look at your investments on a daily basis 41 percent of the time you’ll see that they’ve gone down in price. If you look at your investments over a 5- year period, 12 percent of the time you will see they’ve gone down in price, but if you look at them over a 20- year time period, you’ll never see a decrease in price. Most of us are going to look at our investments often, maybe monthly, maybe quarterly, maybe daily, but we have to understand that over the long run they flatten out in terms of volatility.
Ms. Walker: So it’s, it’s sort of like raising children. On a day-to-day basis, they seem like they’re never going to be socialized, but 20 years from now, they’re baked, they’re cooked, they’re going to be able to make it in the world.
Ms. Holman: Either they’re baked or you’re cooked. There are a few choices, Hollis, that people have with their investments. First of all, if they cannot deal with market fluctuation and market volatility, they can put their money a mattress, they can put it in a tin can in the backyard, but they better –
Ms. Walker: Cookie jar?
Ms. Holman: Yes, a cookie jar. Or they better remember to dig that can up when they move, or they can put it in a bank account that just pays interest, but I think a better approach is to work with a financial advisor who is a professional who understands the value of investing in a diversified portfolio of investments. That person knows what is takes for us to achieve our long-term goals and that we have to take some investment risk in order to keep up with the fact that our goals are increasing in price because of inflation.
Ms. Walker: So Jan, I know that you were a financial advisor for decades before you rose to your current position. But why are you such a believer in the value of using a financial advisor?
Ms. Holman: Well, I think the luckiest thing about my career has been that I got into this industry. I didn’t study finance in college. I studied political science, and in fact, when I graduated from college, I was surprised that I had to go get a job, and I wound up in the financial services industry, and this is a business that touches all of us. We don’t have a choice. We have to invest. We have to take advantage of the investment opportunities that are available to us, but without a financial advisor, unless you’re in this business, I think you’re behind the eight ball. Financial advisors are professionals. They have studied this business. They understand investor behavior, and they understand everything from insurance to taxes and estate planning, and I think it’s just too much to pay attention without the guidance of a professional. The bottom line, advisors protect us from ourselves.
Ms. Walker: Thanks, Jan. That’s all the time we have today. You’ve been listening to #NowMe with me, your host, Hollis Walker and Jan Blakeley Holman, director of advisor education at Thornburg Investment Management. If you’d like to send us a comment or an idea for a topic, please email us at email@example.com. That’s firstname.lastname@example.org.
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