As adults, we tend to be more frightened by our finances than the scary movies and monsters of old. Now, instead of being able to hide and pull the covers over our heads when afraid, we’re forced to tackle some of our most frightening money fears head on.
Fear is a common reaction to managing money, simply because so many people are uncertain about their financial situation.
But just like the ghost and goblins that used to spook us as kids, once we remove the mask, our reality is seldom as bad as we expected.
That’s why today, in a special Halloween version of Your Financial Mom, we’re revealing a few tips that will help you face your fears and avoid falling victim to the spine chilling tricks that are on the other side of your financial doorstep.
According to a study by Bankrate.com, nearly 52% of Americans report not owning any stock-based investments. In fact, the study went on to state that based on these numbers, more Americans own cats than they do stocks.
That’s a scary thought!
While a majority of the people surveyed said they didn’t invest in stocks due to a lack of money, a significant number of others didn’t invest simply because they thought investing in stocks was too risky.
We’re those people wrong? No. Investing in the stock market is risky. However, the reality is, if you avoid risk altogether, you will also avoid the potential returns of the market that are difficult to replicate anywhere else. The stock market has proven to be the best hedge against inflation over time. Take a moment and consider some of your own family members who have been successful in retirement. What are some of the steps that they took to ensure a level of comfort in their golden years?
Without knowing them, I would suspect that they probably started investing early and often. Even if those are the only two things they did, their odds for a comfortable retirement stood to dramatically increase just by those seemingly insignificant actions.
No one wants to dress up like a bag lady in retirement. To avoid that scary scenario, you must get over your fears of investing and just start.
“The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese Proverb
As a financial professional, I can safely say that our industry tends to over-complicate concepts that can otherwise be easily communicated. For example, if you flip through a money magazine or turn on a financial news program, within seconds you’ll be subjected to some form of financial jargon.
I’m not immune to it either! Although I’ve been in the industry for years, there are still moments where I have to read certain things several times just to bypass the fluff and figure out what an article is really trying to say.
I’ve been on the other side as well -- where I’ve used financial jargon and watched clients’ eyes slowly glaze over in response to the combination of boredom and confusion. Ultimately, I learned my lesson and made a commitment to conduct meetings as free of industry jargon as possible.
As consumers, you should understand the products and services that you are consuming -- especially if it relates to your money. If something doesn’t make sense, ask questions. If the advisor that you’re working with isn’t able to explain the concepts in a way that you understand, chances are they don’t truly understand themselves, and that’s your sign to find someone else who does.
From historic events like Black Monday, to the uncertainty of the upcoming election, fall can seem like a scary time for investing.
The reality is, there will be ups and downs in the market regardless of the time of year, and they will seldom be comfortable. However, keeping money in cash or bonds for the long-term has never been the answer for creating wealth. How many millionaires have all their money in a savings account?
Consider an investor who stays out of the market for fear that they could lose money. Their decision to totally steer clear of stocks makes them a lot more vulnerable to purchasing power risk -- the chance that their savings won’t keep up with inflation over the next several decades.
Even if temporary fluctuations in the market make you queasy, remember that you are investing for the long-term and reacting out of fear of short-term events is one of the easiest ways to be thrown off course.
Now the Treats
Fortunately, by addressing your financial ‘tricks’ you’ll eventually be able to enjoy your ‘treats’. This is done by overcoming a fear of the market, sifting through the financial jargon, creating a plan to invest for the future, and sticking to it.
Take, for instance, those investors that move out of the market and into cash at the slightest downturn. According to financial experts, those investors have to be right twice: once when they sell out of the market, and again when they decide to buy back into it.
The problem is, it rarely works that way and, more often than not, if they are waiting for the perfect time to buy back into the market, they will probably never do it. There are professionals who have trouble making this happen.
This is where sticking to your plan is really important. If you have a solid financial plan for the future that takes into account any potential fluctuation in the market, you are less likely to pull your money at the first sign of trouble and stand a far better chance of realizing investment growth than those that move in and out of the market.
But that’s only one part of the equation. Just as your parents didn’t send you out trick or treating alone, you don’t need to face your financial fears alone, either. A survey conducted in 2013 by ING found that 77% of respondents that worked with a financial advisor felt more confident that they would not run out of money compared to half of those that didn’t work with an advisor.
While there is no question you can (and should) learn the basics of managing your finances on your own, the advice and education provided by working with a financial advisor is what makes the engagement worth the investment.
If you’re still a little frightened about facing your financial fears alone, I’d love to tag along and help you make sense of it all! Click here to schedule a complimentary meeting where we can discuss the specifics of your situation and create a plan to unmask that scary beast once and for all!
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.