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Personal Wealth and Finance

Cyclic Bull and Bear markets can play on investor sentiments

July 1, 2022

Two significant cycles frequently occur in the market that many investors are psychologically affected by—the Bull and the Bear market—when market values rise or fall significantly. When it comes to investing, many procrastinate. If they monitor these cycles too closely, it may keep one from putting their money to work, which may be achieved by buying equity investments such as equity investment funds.

The hangup of waiting for confirmation from the media can harm investing. Procrastination can be based on the need for “belief confirmation” before acting. You may need to corroborate that the market is set to take off or ready to pull back in value. The problem is that this either/or mindset may avoid evidence that contradicts their belief. The media frequently offers terrible news. If the market has a low day, this confirms such negative thoughts. When the desired view is not confirmed, fear can take the place of rational investing.

Conversely, the good news is often simply filtered out if it does not confirm the alternate belief that the market could pull back. This process can paralyze an action plan to invest for years.

Waiting for the markets to pull back and lose some value. If the market becomes bullish, rising in value, a procrastinator with this bias may ignore the fact that they held this view, if they have missed the most recent bull market and any growth on their invested assets.

Selling investments upon noting an initial profit People might sell an investment early once it rises in value, for fear of any future loss. Aside from considering taxation, an investment with either a gain or a loss, once sold, ends any future potential of that investment rising in future value. To avoid this mindset one should have a disciplined written plan for buying and or selling investments that can be frequently referred to, or allow a fund manager to make these decisions as they buy and/or sell securities within a fund.

Fear of a market correction when values reach a historic value “Anchoring” an investment viewpoint occurs when someone assigns a reference number, like a 52-week high or low, to compare a price of an investment stock or unit value of a fund. Past price movements are poor predictors of future price performance. When you invest for the long-term for retirement, using a historic price is comparable to driving your car backwards on the expressway. Using the same metaphor, it is important to drive forward and check the rear view mirror occasionally.

Stopping all future investing due to anger If someone sold their investments too early due to fear (for example in the 2008-9 debt crisis), the emotional repercussions from their past bear market losses could make them vulnerable to avoid investing altogether. During such times, an investor needs to refer to written investment goals that align with the person’s risk tolerance, with well-established goals (short – medium- and long-term) that also can help one wait (especially with regard to long-term retirement) and not sell when the market is down. This agreed-to plan is important to create mutually with one’s spouse/partner if one is married, to avoid differences and stay on track if a doubt arises.

During a bear market an advisor is an important strategist for your financial future. We can help you create the best investment plan possible to meet your goals for financial security.


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