Posted on Jun 29, 2014 in
FOCUS ON FINANCE
Presented by the Hardee Investment Group and RBC Wealth Management –
Risk has different meanings to different people, particularly when it concerns investing. It involves the emotion of fear, which causes us to not want any risk emotionally. As a child, if we did something we were not supposed to, we ran the risk of getting caught and the subsequent punishment. In school, the risk of not studying was either cheating on the exam or outright failure. In the workplace, the risk of not doing your job is being fired. In other words, we have been conditioned to treat all risk the same and that risk is inherently bad. Therefore, avoid it at all costs!
Investors treat risk the same way. They don’t want to take any risks. They define risk as losing value in an investment, whether real estate, stocks or bonds. It is visual and can be seen on your statement.
However, there is another insidious risk that is often overlooked, and that is “doing nothing.” The financial problems of 2008 to 2009 were very large, always in the news and seemed as if they would not and could not end. Therefore, many investors stayed in CDs and money markets out of fear. Fast forward five years later, and they are still fearful and sitting in cash.
The problem is fear of risk immobilized them, and they did nothing. By trying to avoid visible risk, they were trapped by the invisible risk of eroding purchasing power. By earning next to nothing, they are forced to live off of their principal. In short, they are cannibals, eating up their own life savings out of fear. The more they eat, the less likely they will be to ever recover, and fear wins again.
Do you find yourself in this emotional situation? Next issue we’ll discuss how to quantify risk, get fear under control and remove emotion from investing.
In the meantime, we invite you to visit us at www.HardeeInvestmentGroup.com to review previous articles we’ve written regarding the relationship of emotions and investing. They can be found under the Newsletters section of our site. Or, if you’d rather, give us a call at 713-853-0879 if you’d like to talk to Will, Mark or Heather about removing emotions from investments.
The views presented herein are solely those of H.H. “Will” Hardee, and do not necessarily represent the views of RBC Wealth Management. Current status of issues discussed in this letter is subject to change based upon market conditions and industry fundamentals. Clients should work with their Financial Advisor to develop investment strategies tailored to their own financial circumstances. Past performance is no guarantee of future results. The name Hardee Investment Group refers to a group of Financial Advisor working in the Houston, Texas office of RBC Wealth Management. The Hardee Investment Group is not a separate legal or corporate entity. All services offered and all memberships referenced in the presentation refer to the services offered or registrations held through RBC Wealth Management. RBC Wealth Management, a division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC. RBC Wealth Management, a division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC.
