Human behavior is funny in that we often hurt ourselves in an effort to protect ourselves. As we set sail for 2021, be careful about being overly influenced by the events of 2020. Below are two cognitive biases or “mental traps” to be aware of:
Recency Bias is allowing recent events to have a disproportionate effect on your overall long-term view.
Financial Planning Lesson:
Confirmation Bias is when we reshape events in our mind to confirm a belief that we already have. Example: Having some random bad luck like stubbing your toe while walking in bare feet and saying “Ugh! This is so 2020”
Financial Planning Lesson:
Cash is underrated as a part of your investment mix. It may not be flashy, but it’s reliable and helps keep your confidence high. It can also turn dreams into reality when opportunity knocks. Our clients often find it difficult to determine the right amount of cash to hold, but we can help with that.
I can tell you that Wheeler Financial’s emergency fund absolutely gave me confidence in the spring when the markets were crashing. Just a few months earlier, that cash felt like a drag on my investment performance, but once Covid-19 hit, I knew we could keep our people employed, pay rent, and serve our clients for a long time if business came to a screeching halt.
Take a look at this article for more on the benefits of holding cash.
Any opinions are those of Wheeler Financial LLC and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.
