FEAR
FEAR
Those who act with few desires are calm, without worry or fear.
FEAR
U N OWEN
Inflation is a silent destroyer of wealth. Most people feel very comfortable keeping large amounts of cash in bank accounts with the hope that the interest on them will be sufficient to see them through.
However, when inflation is high, if the bank’s interest rate is not high enough, the buying power of that money will reduce over time.
When cash is kept in bank accounts, the fear of wealth destruction is real. Investment does temper some of the effects of inflation but it can sometimes seem like wading out in the ocean with a dinghy and a paddle, in the dark and without a compass.
Investment is riskier than saving as cash, but with prudence it can be a more sustainable option towards wealth and freedom.
VOLATILITY
We must not equate volatility with risk. Just as there is a big difference between good management and good leadership, there is a significant difference between volatility and risk.
Volatility is when prices in the markets are fluctuating considerably in a short period of time. The market moves as a herd so this behaviour is to be anticipated. It does not however mean that the underlying assets have become any more or any less risky.
Making a decision to sell out of fear of volatility is to be avoided. If the fundamentals of the underlying funds are solid, then there should be no reason to sell when the price plummets; indeed, it may be the time to buy more !
PRESSURE
There are some financial advisers who generate fear and panic to pressure their clients to buy or sell, usually at exactly the wrong times. The solution in the case of incentivized “advice” is to be skeptical and double-check anything being told.
Never capitulate to pressure from financial advisers.
You are your best advisor - no one else.
As XXXX said in Layer Cake: Have a plan. Stick to the plan.
Usually, the best buying opportunities are during turbulent times –
we must not let a good crisis go to waste by not investing in funds that have suddenly become cheaper without any apparent reason.
MISJUDGEMENT
We often make errors of judgement when we are under euphoria, exuberance, fear or stress. These can prove to be very expensive over the longer term.
Remember when markets have dipped, selling funds locks in losses whereas buying funds locks in future gains.
Misjudgement can be the most damaging of all the errors we make. Awareness of it will go a long way towards recognising, evaluating and eventually mitigating it.
SUMMARY
Fear makes us behave in ways that are different to when we are calm. Knee-jerk reactions appear reasonable and all our instincts tell us to fight or flight - do something in response to the threat.
It is precisely at these moments when the most rewarding or the most damaging actions are taken.
We hope that you can navigate safely in a choppy, turbulent world.