FOR MANY OF US, charting our financial future is fraught with
fear,insecurity, impulsivity--feelings that can capsize a savings or
retirement plan, or even discourage us from investing in the first
place.
HERE, A PSYCHIATRIST WHO IS ALSO AN INVESTMENT ADVISER REVEALS HOW
TO MANAGE BOTH YOUR MONEY AND YOUR EMOTIONS ABOUT FINANCIAL
PLANNING.
INVESTING IS A SIMPLE MATTER: buy good stocks and hold on to them,
and time will make you rich. This is the most common bit of advice given
to beginning investors. But if it's true that investing is so simple,
then why do people wind up losing money on stocks, view the market as a
major gamble, or feel too intimidated to invest in the first place?
Because every emotional drive associated with money gets played out in
investing: the longing for security, the guilt engendered by greed, the
quest for power and self-esteem, the fear of being abandoned, the search
for love, the dream of omnipotence. And when these constellations of
emotions intersect with the churning, manic-depressive mood gyrations of
the market itself, the result can be financially dangerous.
In recent years, more people have jumped into the stock market than
at any other period in history. Eighty-seven percent of the money ever
invested in the U.S. stock market has come in since late 1990.
Company-sponsored pension plans have been rapidly replaced by 101(k)
plans, IRAs, and other self-directed arrangements. We have entered the
age of financial autonomy, an exciting period, but one fraught with
anxiety as well as promise.
In order to become more confident in this environment, ordinary
investors must be self-aware as well as self-directed. And we need to
recognize that the emotions mentioned above can cause us trouble.
Fortunately, there is a host of things we can do to distance ourselves
from counterproductive feelings when making investment decisions. When we
know that we are able to control our own self-defeating behaviors, we
approach the market with a sense of comfort--and we increase our
success.
SEEKING CERTAINTY
Many people find the stock market a scary place; they search for
certainty--which doesn't exist--and they are averse to any risk. Yet they
know that over time, investing is the best way to make money. Often,
certainty-seeking investors have experienced losses or trauma early in
life, or suffered recent losses, such as the unexpected death of a
spouse. They want to avoid loss now, since they have already experienced
so much pain. But these investors may be unaware of the other side of the
picture. If you invest in quality stocks, losses take on less
significance in the long term because they are greatly outnumbered by
gains.
To deal with this aversion to risk, an investor needs to remember
that it is not necessary to be infallible in order to succeed in the
market. The famous I child psychiatrist D. W. Winnicott, M.D., coined the
phrase "the good enough mother," meaning a mother who is capable and
caring but does not have to be perfect in order to raise a child
successfully. There is also the "good enough investor," who is generally
competent but not in need of total safety, because he or she isn't always
looking to be perfect or to "beat out" everyone else's results.
Instead of thinking "safety," certainty-seeking investors need to
think about "spreading out the risk"--investing in a variety of stocks,
funds, or bonds, so that if any single investment does poorly, the rest
of the portfolio will shoulder the burden of financial growth. It is also
important for these investors to learn to act as independently as
possible.
Many risk-averse investors think they need a great deal of
hand-holding from their broker or investment adviser, and even their
friends. While this helps up to a point, it is best for certainty-seekers
to make the basic choices for their stock portfolio independently, in
order to foster independence and to convince themselves that their
choices are "good enough."
Extremely risk-averse investors are often advised to put their
money mainly in U.S. Treasury bonds, the safest of bonds. But a totally
risk-averse route can freeze you forever into an overly-cautious attitude
that will prevent investment success. It's fine to start out with all of
your assets in Treasury bonds, if you work toward having 40 to 60 percent
in bonds and the rest in stocks.
THE ANXIOUS INVESTOR
Some people are avid and hardworking investors, yet they make
themselves miserable because they are always anxious. They worry when
their stocks and mutual funds go up, they castigate themselves when
stocks go down, and they feel that every market decision they make has to
be the "right" one. But worrying can sink a stock portfolio; its
obsessive nature can cause investors to sell when it is against their
best financial interest.
Tags:
anxiety,
constellations,
financial future,
gambling,
gyrations,
inheritance,
Investing,
investment decisions,
iras,
longing,
manic depressive,
risk,
simple matter
