The recent market volatility feels uncomfortable. It “feels like” we ought to be doing something to protect our hard-earned savings. But those feelings are not our friend longer term.
If you have money in the market that you will need in the next few years, that is a strategy issue that needs to be re-visited. Long term assets, however, should stay invested and any significant decline should be seen as an opportunity to “purchase things on sale.”
More interesting to me is how our brains are wired to cause us to have the instincts we do. We are responding normally but not helpfully.
Here’s why:
There are two parts of our brains that influence our “executive function” and are key players in this.
The Amygdala is part of our limbic system and is the emotional processor in our brains tied to fear, threats and survival instincts. It kicks in during a “fight or flight” response. It’s fast, automatic and reactive. You turn a corner and see what you think is a snake and your heart races BEFORE you even consciously process if it’s dangerous or not. Many crimes of passion are considered an “amygdala hijacking”!
The Prefrontal Cortex is in charge of executive control in our brains and is where we get our rational thinking, decision making and regulated emotions. It’s slower, deliberate, and logical. Oh, that isn’t a snake, it’s a stick! The prefrontal cortex steps in and overrides the amygdala.
The best investors are those who allow their prefrontal cortex to remain in control and think through the implications of interrupting the compounding of their assets.
Our economy has been through many disruptive times – wars, recessions, depressions, stagflation, and geopolitical unrest. Yet, with the benefit of hindsight, we can see that simply riding those things out and using the disruption as an opportunity to improve your portfolio has been a winning strategy.
Our advice, as always, is to try and be as clear-headed as possible in the face of uncertainty and not to interrupt the compounding of your assets.
This has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable through its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of publication and are subject to change without notice. Past performance is not indicative of future results.