Fear is a natural human reaction, especially when faced with the unknown. 

When investing, where the stakes are high and the future is often unclear, fear can quickly become a dominant force.

However, while it's normal to experience fear, succumbing to it can lead to poor financial decisions.

As a seasoned portfolio manager and retirement advisor, I've observed firsthand how fear can distort an investor's perspective, leading people to make choices that are not in their best financial interest.

In the financial markets, uncertainty is a constant. Yet, how we respond to this uncertainty can significantly impact our success as investors.

This week while exercising I listened to an episode of Standard Deviations with Dr. Daniel Crosby from Orion Advisors. With guest Naomi Win they discussed the topic of uncertainty and how to deal with it. It inspired me to dig deeper and provide my perspective on this important topic.

As discussed in the podcast, there are four main ways people deal with uncertainty:

• Agitation (like a kid who just had too much sugar)

• Avoidance (like staying away from Dunkin Donuts)

• Denial (like a politician caught in a scandal)

• Paralysis (like a deer caught in the headlights)

Each of these responses can severely hamper our ability to manage our investments effectively.

In this note, I will share insights and actionable strategies developed over decades in capital markets to help investors not only manage their fears but also thrive in uncertain times.

By understanding the psychological triggers behind fear and learning how to confront and control these feelings, investors can transform their approach from one of fear to one of informed confidence.

The Dangers of Letting Uncertainty Stop You From Making Decisions

Allowing uncertainty to inhibit decision-making can have significant long-term consequences for investors.

When investors succumb to the paralysis of indecision, they risk missing out on opportunities for growth and potentially exposing their portfolios to greater harm when they fail to react to market shifts or changing personal circumstances.

Here are some of the key dangers of letting uncertainty stop you from making investment decisions:

How Uncertainty Shows Up

Fear of investing often manifests as one of four reactions: agitation, avoidance, denial, and paralysis.

Each of these responses, while natural, can distort our decision-making processes and lead to suboptimal outcomes:

• Agitation can cause investors to react hastily to market fluctuations, often resulting in buying high and selling low.

• Avoidance may lead investors to miss out on opportunities because they are too afraid to act.

• Denial can result in a lack of responsiveness to changing market conditions, keeping investors locked in deteriorating positions.

• Paralysis freezes decision-making altogether, preventing any action, whether opportunities or risks present themselves.

As a former portfolio manager with extensive experience, I've witnessed many clients struggle with these reactions. However, those who recognized and managed their fears were the ones who succeeded in maintaining robust, growth-oriented portfolios.

Overcoming Agitation by Planning Ahead:

Investors feeling agitated by market volatility need strategies to anchor their actions:

• Develop a Solid Investment Plan: Start with a clear, objective plan that includes defined goals and risk tolerance. This plan should serve as a roadmap to guide your decisions, irrespective of market conditions.

• Practice Regular Rebalancing: Ensure your investment portfolio aligns with your risk tolerance and goals through periodic rebalancing. This can mitigate the urge to make impulsive decisions based on short-term market movements.

• Use Automated Tools: Consider setting up automatic investing and stop-loss orders to help maintain your strategy without falling prey to emotional reactions.

Navigating Avoidance in Financial Decision-Making:

To combat avoidance, investors should:

• Educate Themselves: Knowledge is a powerful tool against fear. Understanding basic investment principles and market history can demystify fears and stimulate confident action.

• Start Small and Safe: Begin with investments that carry lower risk and learn as you grow, gradually increasing exposure as comfort with market dynamics develops.

• Seek Professional Guidance: Consulting with an advisor can provide clarity, reassurance, and support, making it easier to take necessary actions.

Breaking Through Denial with Awareness:

Overcoming denial involves:

• Regular Portfolio Reviews: Regularly reviewing your portfolio's performance can help acknowledge actual vs. expected performance, prompting timely adjustments.

• Staying Informed: Keeping abreast of market trends and economic indicators can help investors recognize when changes are needed, thereby reducing the risk of denial.

• Peer Discussions: Engaging with fellow investors can provide new perspectives and reduce biases, helping to break through denial. I am a huge fan of masterminds.

Conquering Paralysis with Proactive Steps:

To overcome paralysis, investors can:

• Set Incremental Goals: Break down actions into small, manageable steps. This makes the task of investing seem less daunting and helps maintain forward momentum.

• Use Real Diversification: By spreading investments across various asset classes, investors can reduce risk and feel more secure in making decisions. Beware of “fake” diversification where all your investments always move in the same direction. Own stocks, bonds, cash, and alternatives such as commodities and real estate.

• Embrace Technology: Utilizing robo-advisors and other fintech solutions can simplify decision-making processes and automate otherwise emotionally difficult decisions.

Investing in the face of uncertainty can be daunting, but by understanding and managing the fear that accompanies it, investors can make more informed, confident decisions.

Investors who recognize the signs of agitation, avoidance, denial, and paralysis and apply the strategies discussed can make more informed decisions, remain agile in a volatile market, and align closer with their long-term financial goals.

The journey through uncertain financial times need not be navigated by fear and inaction. Instead, with the right tools and mindset, investors can thrive, making calculated decisions that compound their successes over time.

Asset Allocation Performance Review

High-Level Observations:

Weekly Performance Attribution

Long-Term Asset Allocation Portfolio Characteristics

Expected Returns:

Risk:

Equity Risk:

A Bit of Wisdom Never Hurts

Disclaimer: This newsletter is not trading or investment advice but for general informational purposes only. This newsletter represents my personal opinions which I am sharing publicly as my blog. Futures, stocks, and bonds trading of any kind involve a lot of risk. No guarantee of any profit whatsoever is made. You may lose everything you have. We guarantee no profit whatsoever, You assume the entire cost and risk of any trading or investing activities you choose to undertake. You are solely responsible for making your own investment decisions. Owners/authors of this newsletter, its representatives, its principals, its moderators, and its members, are NOT registered as securities broker-dealers or investment advisors either with the U.S. Securities and Exchange Commission, CFTC, or with any other securities/regulatory authority. Consult with a registered investment advisor, broker-dealer, and/or financial advisor. By reading and using this newsletter or any of my publications, you are agreeing to these terms. Any screenshots used here are the courtesy of Global Focus Capital and Retirement With Possibilities. The data, quotes, and information used in this blog are from publicly available sources and could be outdated or outright wrong - I do not guarantee the accuracy of this information.