"Investors who are Proactive vs. Reactive"

In this addition of  Emotional Wealth we discuss;

• The difference between Proactive vs. Reactive.
• Having an emotional, knee-jerk response to short-term events
• Taking an educated and intelligent non-emotional approach in analyzing the impact to their financial plan from short-term events. 
• Understanding the differences between the two, and the potential impact on your financial goals.
• Using Proactive to help control your emotions during an emotionally driven time.

Transcript

Hi, welcome to this edition of my two cents. My name is Lon Broski, I'm a certified financial planner, clients wealth management in St. Louis. And my goal in doing these videos is very simple. I want to help educate investors. I firmly believe that an educated investor makes for a better investor who makes more intelligent decisions, which ultimately helps keep them on track with their financial goals. I want to talk about two very important concepts this week. Proactive versus reactive. And it's very important for the long term patient, goal focused planning driven investor to know the differences between the two, because over the last five plus months where volatility has been extremely high, and investors have had a high have had a high amount of anxiety. These two terms often get confused and the press one is a knee jerk emotional response. bonds to short term events and doesn't belong in your financial plan. And the other is a measured, educated, intelligent approach that analyzes the effects on your financial plan and also your investments from short term events. And it's unemotional can help you in your financial plan one gets you closer to your financial goals, the other actually gets you further away from your financial goals. So it's important for investors to know the difference between the two. Well, let's talk about being reactive. being reactive is I understand that with investors, it's a common emotional response to to fear and to panic. And it's that financial press doesn't help the investor in times of fear and panic. In fact, I would argue that they actually help them by encouraging the investor to be reactive from from February 19 to march 23. The s&p 500 dropped 34% In 33 days, which at the time was the was the biggest drop in the shortest amount of time, and was the height of the COVID-19 panic, we hadn't yet understood COVID-19 and the impacts on the economy or the impacts on on us as as a society. And so at that fear or that at the at the height of that fear, you had the financial media, through websites, through newspapers through financial shows on financial channels, telling us to react, encouraging, encouraging us to react through the headlines, you saw headlines like money moves to make now or you saw the financial channels scramble to get shows on in prime time that that's specifically focused on reactions that you should be taking right now or moves that you should be making right now. To help you through this, this crisis. Those are really active and reactive types of things they were encouraging you to do. So a knee jerk response and emotional knee jerk response to what was happening to the uncertainty in the panic that was that was happening at the end of March. And it happens every crisis 2008 2009 which is the most recent crisis that everybody thinks of that was they had there was all kinds of headlines in the, in the newspapers and on the websites, and all kinds of financial shows that were were in response to what was happening during during the crisis, a reactive type of, of response to the uncertainty and actually getting you farther away from your financial goals because the author of of these these, these articles, they don't care whether or not you get closer to your financial goals or not. Their whole goal in in wanting you to be reactive, is is invoking that a reactive emotion in you is to keep you glued to that article to keep you from glued to that television because that's how revenue is generated. If you're glued, they have you hooked emotionally into these, these articles into these websites into these shows, then they're doing their job, not caring whether or not they're getting you closer to your goals are actually farther from they don't care. They just want you to be emotionally invested in what they're selling. Well, a proactive investor is just the exact opposite proactive investor takes a measured educational intelligent approach to uncertainty to downturns into fear and panic. Because the most proactive investor understands that the emotions involved during draw downs during fear and during panic are not necessarily relevant to your goals. They don't help towards your goals. The proactive investor understands that how do you become a proactive investor, you do your research you Do your homework before a drawdown before a crisis before fear and before panic happen. You understand how your investments are going to react in good times you understand how your investments are going to react in bad times. You've done the research already, you've done your financial plan. Additionally, you understand the risk levels that you're taking in your particular portfolio, and you evaluate those various risk levels. doing the homework before is being proactive. And then the advantage of doing that is is that in times of fear and panic, you take the absolute correct response and non emotional response, because you've already done the research and the homework. And a proactive investor also uses history as a guideline, not headlines. The reactive investor uses the headlines as Their guidelines, not realizing understanding that that reactive response to the crisis to the downturn is not the correct response can actually get you further away from your calls. Now, does being a proactive investor mean that you are idle? Whenever a downturn happens? Whenever a fear and panic strike, the proactive investor sits idle, sits on their hands does nothing? Absolutely not. The proactive investor understands that in that moment of panic in that moment of drawdown, a proactive investor could potentially alter or change their target allocation and take advantage of the environment that the drawdown has created. Give an example perhaps maybe you wanted to reallocate or in your target Asset Allocation Plan. You have a certain percentage of your investments allocate to small sized companies, six months ago when you were going through your target allocation and developing it and implementing it, small sized companies were very expensive. And so you forego investing in that particular asset class. Well, now the draw down has given us an environment where we can reinvest in that asset class, per our target allocation was which fits in our financial plan. It has nothing to do with the emotion of the moment. It's not a function of emotion. It's a function of our financial plan and staying on target with our allocation within our investments. That's what rebalancing is. The other opportunity that you might see in a draw down to the proactive investor might you utilize is to re evaluate their risk levels. Perhaps maybe they weren't in the right investment To begin with because their risk levels, they didn't understand them fully well on drawdowns, that's an opportunity for you to understand exactly what your risk levels are. So reevaluate the proactive investor reevaluate his risk levels. And understand whether or not those risk levels are working for their financial goals or against their financial goals. So take the opportunity to practice investor takes that opportunity to do that to really reevaluate their target allocations to make sure they're they're on track with their financial plan, and to really re evaluate risk levels and to take advantage opportunities that the drawdowns have given them. So, being a patient, long term, goal focused planning driven investor knows the differences between proactive and reactive, one could potentially damage your goals could put you further away by being reactive whereas being proactive is a measured intelligent approach to crisis. And we will have another crisis. At some point in time, I don't know what's gonna cause it. I know how long it's gonna last. I don't know when it's gonna happen. I just know that there's going to be another crisis and when it happens, the the proactive investor knows what the impact is going to be. And takes an unemotional response towards the fear towards the panic and helps them stay on track with their goals. As always, thank you for taking the time to watch these videos. You can follow us on Facebook, Twitter, or LinkedIn or visit us on our website for more information at www pines wealth com. You can also make an appointment there as well. Stay safe, stay healthy. Thanks for tuning 

Transcribed by https://otter.ai