As seen in

Don’t Ignore Financial Emotions. Instead, Plan for Them. – Presented by Mark K. Lund, Financial Advisor in Utah

Financial Advisor UtahIn Homer’s Odyssey, the hero Odysseus is trying to get back home with his ship intact. At one point in their journey, he and his crewmen must pass near the rocks of the sirens. These are creatures with the bodies of birds and heads of women who sing magically enticing songs that cause men on passing ships to leap overboard to their deaths.1

Odysseus prepares for his passage near the sirens by having all his men stuff wax in their ears. But being curious, he wants to hear the famous song. So, he has his men bind him securely to the ship’s mast. As they row past the sirens, Odysseus struggles desperately to free himself. But his men do not untie him until they are safely out of earshot.

We now use the term “siren song” to describe any strong temptation that leads to our own harm.

Ben Carlson, an investment manager and noted financial blogger, has used this term to describe the urge to “time the market”—jumping into or out of an investment with the aim of making a quick profit.2

The siren song of market timing is the strong emotions that come with winning and losing. If you happen to get lucky, you get a feeling of satisfaction that’s strongly addictive. On the other hand, if your gamble sends you into the red, you experience an even stronger emotion—the sting of loss. Unfortunately, the natural response is to immediately try to get rid of this terrible feeling by rolling the dice again.

Carlson has observed among his clients that the siren song is especially loud when an investor has a lump sum that they want to add to their portfolio. Mathematically, if you’re going to stay invested for more than 5 years, it makes sense to invest lump sums whenever you’re fortunate to have them. Many folks split the difference and choose instead to use dollar cost averaging to put the new dollars to work in equal amounts over a specified time.

But when you have a sizeable sum to add to your retirement account, it’s tempting to think about how much you could make instantly if you buy in at just the right moment. You say to yourself, “What if I just hang out in cash for a while to see if the market pulls back 5-10%? There’s no harm in that, right?”

“The problem with this mindset,” says Carlson, “is eventually that you turn into Gollum (from Lord of the Rings) and the cash is your Precious.”

A multitude of studies have shown that attempting to time the market is a behavior that costs the typical investor a significant percentage of potential return over the long-term.3

“This is why the best investing plans,” writes Carlson, “make good decisions ahead of time so you don’t allow your emotions to take the steering wheel at the worst possible times.”

There are times when it is appropriate to rebalance and reallocate your investments. But this is best done in partnership with your trusted advisor, who, like Odysseus’s crewmen, can help you avoid making a self-defeating decision in response to strong emotions.

If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.

Regards,
Mark Lund
Stonecreek Wealth Advisors, Inc.
11576 S State Street, Bldg. 1002
Draper, UT 84020

Sources:
1. http://go.pardot.com/e/91522/wiki-Siren-mythology/93zjzg/2106555478/h/f-TeY5mP1zB9oSjF3eJXvDRVA8Si4kDcfTP3pB4T9o0)
2. http://go.pardot.com/e/91522/e-siren-song-of-market-timing-/93zjzk/2106555478/h/f-TeY5mP1zB9oSjF3eJXvDRVA8Si4kDcfTP3pB4T9o0
3. http://go.pardot.com/e/91522/-long-term-market-results-html/93zjzn/2106555478/h/f-TeY5mP1zB9oSjF3eJXvDRVA8Si4kDcfTP3pB4T9o0

Disclosure:
This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by Efficient Advisors, LLC (“EA’) for Mark Lund, Mark is a Financial Advisor in Utah. He is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Planner, Investment Advisor and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment management and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Effective Investor Newsletter.  Cities served in Utah are: Salt Lake City, Salt Lake County, Utah County, Park City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, American Fork City.  The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.

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