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Managing Fear
October 20, 2017

In Napolean Hill’s classic ‘Think and Grow Rich’ the 15th and second to the last chapter is entitled ‘How to Outwit the Six Ghosts of Fear”.  Through his research he defines six basic fears;

The fear of poverty

The fear of criticism

The fear of ill health

The fear of loss of love of someone

The fear of old age

The fear of death

In Hill’s interpretation, poverty is not specific to a lack of means or money.  It is an insufficiency or deficiency of the necessary or desirable aspects of our life.  It could be material, financial, spiritual, and mental.  In the financial sense, we don’t interpret it as living at the poverty level.  Rather it is the fear of not living the lifestyle you desire.  In our world the actual size of portfolios or incomes may span a great divide, but the emotional impact resulting from the fear of poverty or loss can be quite similar across balance sheets and incomes.

Fear is a state of mind.  It can be either rational or irrational.  Rational fears keep us safe.  Irrational fear is most often rooted in ignorance or doubt and can lead to poor behavior and bad decisions. 

Anyone who is an investor or has finances to manage must confront the fear of poverty head on.  Each one of us must understand our own unique circumstances, our specific finite resources, our personal lifestyle, and the amount of change we can live with that would threaten our definition of poverty, rational state of mind, behaviors and decisions.  

One of the key attributes to the success of ‘Think and Grow Rich’ Hill’s insistence on planning for your desired goals and life.  We are believers that the ultimate success in financial planning and investing is rooted in a well-constructed plan.  The best laid plans are based on rational and informed decision-making.

We do our best to eliminate fear in two ways.  First is to complete a thorough analysis of your finances.  It will answer the underlying questions of the fear of poverty.  Do I have enough to retire?  Can I educate my children?  How much home can I afford?  What happens to my family in the event of my death?  Is my estate properly planned for the beneficiaries of my life’s works; and others unique to your personal situation.

The second way we help manage fear is to construct a thoughtful and prudent investment plan.  We are strategic, value-oriented, global and active money managers.  Our investment plans have been rooted in these attributes for decades.  Our plans may be altered for the changes in the environments or investments we encounter, but the investment plans and allocations thoughtfully evolve based on our core principles. 

We have two goals when constructing an investment plan.  First is to earn a return sufficient to help you achieve your desired goals.  This is established and defined in the financial planning process. 

The second goal is to manage the risks in the portfolios so that your goals are achieved and your behavior or decisions don’t derail the plan.  There are a lot of risks associated with investing.  In our decades of experience, volatility risk; i.e. portfolio values dropping (or increasing) in value, has been the most impacting on investor fear and behavior. 

It is at the extremes, significant declines and long running bull markets, where fear (and greed) reach their maximums and mistakes are made.  At its essence, investing is buying low, selling high and allowing the magic of compound interest work to your advantage.  Emotional extremes encourage the opposite, selling low and buying high.  There is plenty of psychological research to back up the fact that pain and fear are much more impacting on our decision making than their opposites.

We are into the second longest bull market in history.  It will correct.  We do not know when and to what extent.  Our evolving plan and strategy has been to reduce overall equity exposure (we are invested approximately 90% to our equity targets), find the sectors of the markets where values may be better than others; e.g. large value stocks, international and emerging stocks, and we have rebalanced throughout this long running bull market to sell higher priced assets and reallocate to lower priced.

Change is inevitable.  It is our ability to plan and adapt to change that makes us more successful in life’s evolution.  If you have any questions as to whether your overall financial plan or your specific investment plan is positioned to carry you through to your long-term goals or will affect your decision-making as the financial and market cycles move through their inevitable changes, please reach out to us to discuss.


Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice.  Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed.  Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security.  Past performance is not indicative of future results.  There is no assurance these trends will continue or that forecasts mentioned will occur.  Investing always involves risk and you may incur a profit or loss.  No investment strategy can guarantee success.  The process of rebalancing may carry tax consequences.  Raymond James is not affiliated with and does not endorse the opinions or services of Napolean Hill.    

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