Tag Archives: invest

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How To Know When To Get Out Of The Market

Originally published CNBCHas the market’s recent volatility worried you? Me too. It’s inevitable. Apparently, it’s how we’re wired. But better understanding that wiring can give us a clear decision-making framework to help us know if and when to get out of the market.

The field of behavioral finance has demonstrated that the pain we derive from market losses impacts us twice as much as the pleasure we feel from market gains. For this reason, investors are well served to name and address these emotions instead of setting them aside as they (unfortunately) have been taught.

We’ve all heard of the cost/benefit decision-making model, but “cost” and “benefit” are intellectual constructs too distant from the actual emotions that drive our decision-making. We need to address the gut—the “pain” and the “pleasure” associated with a tough decision. The following four-step model seeks to merge the head and the gut. And while it’s applicable in virtually any either/or scenario, let’s specifically address the decision to stay invested in the market or to move to cash:

Market Decision Image Cropped

1) The pain of staying invested is that I could lose even more.

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90 Second Finance…Don’t Panic!

In 2010, I released a series of videos with the help of my friend and audio/visual enthusiast, Ben Lewis, entitled Finance in 90 Seconds or Less.  The attempt was to force me to encapsulate meaningful and substantive lessons in personal finance with the aid of a whiteboard in 90 seconds or less.  I FAILED!  We released 14 of these 90 Second Finance videos and I think no more than two of them fell under the 90 second allotment.  Educational they may have been, but I called myself on false advertising.

So I’ve made a resolution in 2011 to continue the series, BUT to only release those videos that are, indeed, 90 seconds or less.  (We’ll continue to produce some longer “feature” videos, like Making Financial Music, but the 90 Second series will carry this mandate.)  So far, so good.  We’ve recorded three videos and I’m batting a thousand!  Here’s the first with three actions you can take to avoid panicking, even when market or economic news seems to call for it.