Fear and Your 401(k)*
My name is Kevin, and I have a fear of snakes. Even though I know most of them are harmless, I cannot fight the urge to head the other direction as quickly as I can. I’ve always been somewhat embarrassed by my excessive fear, but it turns out this is fairly common. Studies suggest that this fear has been conditioned in humans because of the danger snakes posed for our ancestors. And besides, the manly-man Indiana Jones was also terribly afraid of snakes.
Luckily for me, this fear has little impact on my daily life; the times I’ve actually encountered a snake are few and as long as I’m at a safe distance, or some glass separates me and the snake, I’m able to remain quite calm.
I’ll also admit that I have a fear of losing money. A substantial part of my life is dedicated to earning it; the last thing I want to do is lose it. Unlike my fear of snakes, fear of losing money can unfortunately have more serious consequences.
It’s easy to understand how this fear creeps in. Financial markets and the economy receive a good deal of media coverage, and it tends to be more on the negative side than positive. As they say, “bad news sells,” so there is some benefit for them to cover things that make us fearful. That fear is fueled by any investment losses, which confirms that the economic troubles the media has been talking about must be something to take seriously and something that should be acted upon. Just like my fear of snakes, this thought process is very common, and one that often leads to poor investment decisions.
What should you do about it? Assuming you have followed the steps mentioned in a previous blog about investment behavior your best course of action may be to do nothing. Even though your natural tendency might be to stop investing, the reality is if you have a solid investment plan that is designed to carry you through your retirement years, you’ll understand that occasional setbacks will be common along the way. While it never feels good to lose money, these losses are a byproduct of investing; a side effect that I’m willing to accept in pursuit of building a long-lasting retirement account.
So whether you fear snakes, spiders, heights or losing money, just know that it is common to have fear. And while it may be beneficial for me to flee when I see a snake, fleeing from my investment plan will likely yield more negative results.
Kevin Jaegers, Senior Investment Adviser
*Kevin’s take on snakes and retirement investing replaces this week’s “A Week in the Rearview” segment, which will be back next week.
About Smart401k
Smart401k is a Web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans. Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at Smart401k.com.
