How to Avoid Emotional Investing
From the Orange Couch

Ashley: Hello, I’m Ashley Albertson, your Client Service Manager at Tull Financial Group, and joining me today is Robin Tull, CEO and Founder of Tull Financial Group, with more than 35 years of experience in the industry. And with that time, you’ve seen a lot.

Robin:

Yes, very much so.

Ashley:

So today, we want to address some of those things that have happened over time and the concerns that our clients have had.

Ashley:

The first question I wanted to address was how should investors differentiate between the information they’re seeing on the news and what’s valuable, and then just the noise?

Robin:

There’s a lot of information out there. We’re dealing with this 24-hour news cycle where you flip the news on, flip the TV on, any time there’s a lot of information. This happened here; this happened here. Some of it’s good, some of it’s informative, and some is not.

What you need to remember is they’re still journalists and news anchors that need to get our attention. In advertising terms, they say the word, “eyeballs”—so that’s what they’re trying to do and you’ve got to be aware of that I think.

Then there’s your phone—you set your notifications when the market’s up, the market’s down, or whatever your portfolio might be doing. The more you look at it, the algorithms feed you more of the same information, which causes a lot of emotional concern. I think that’s the thing people are dealing with a lot today.

Ashley:

What are these common emotions and how do you recommend people manage them?

Robin:

I think the most common that we run into are fear and greed. If you could control fear and greed, you’re going to be a successful investor over time. Fear would be: the market drops and you pull out too early. That would be something that you would have to be watching out for from an emotional reaction.

Then the other is greed. Greed is saying the market’s up 24-25% and I need to get in there. It’s FOMO (Fear of Missing Out). I try to help people not do that. I often will use a baseball term: swinging for the fence. Those in baseball who swing for the fence strike out a lot and their batting averages are pretty low. We want to help people hit singles and doubles. Get them around the bases so they have a successful retirement.

Ashley:

Yes, I’ve heard that concept before. So, personal experiences. What would you say were some emotional decisions that directly impacted investment conditions?

Robin:

When I look back in history—and I’ve been around a little while; I’ve been doing this for 40 years in July, Ashley—one would be 1987 on October 19th. That was a Monday and the market dropped 23% in one day. Caused a lot of people concern, and they were bailing out. They really shouldn’t have because things corrected rather quickly. 

I also think of 1999 to 2000—that was when people were saying when computers turned over to 2000, the economy’s gonna fall and market’s gonna fall. Didn’t happen.

Ashley:

I remember that.

Robin:

It was a lot of fear. Then in the 2000s we had the dot-com bubble burst, the mortgage crisis of 2007-2008, and what did we have most recently?

Ashley:

The pandemic.

Robin:

The pandemic. It was pretty short from a market standpoint. So, all of those things cause people to react and be emotional. It really can affect the successfulness of their investing program.

Ashley:

It does. I’ve sat in a lot of meetings with you and our clients, and I can see and feel the concerns that they’re having—political or otherwise—and the worry about their financial future.

Robin:

Yes, politics. Some people will invest based on their politics. We saw that in 2020 when people pulled back and the market went up. We’re seeing it today. The best thing is to not invest based on your political affiliation. Find out what’s going on in the market. Look at the data points. Look at the policies that are being set up. Allocate your portfolio based on the real data: inflation and interest rates. Not on who’s in power.

Ashley:

That’s what you do. That’s what we do here at Tull.

Robin:

That’s what we do.

Ashley:

What are some practical steps an investor can take to avoid it?

Robin:

I think the first thing is whether they work with us or work with someone else, choose a financial advisor to work with. There was a DALBAR study that said that about 4.66% of performance was lost because of emotional decisions. That can hurt. I think working with a financial advisor can help.

Ashley:

Absolutely. And then wasn’t there a Vanguard whitepaper that came out?

Robin:

There’s a really good Vanguard paper that talked about Advisor’s Alpha and what an advisor can add to the success of a client’s financial plan. I think it was like 3% they added to the success of their investment performance. What were some of the things the financial planner did? Financial planning, tax planning, being disciplined, and this other thing we’re talking about is being a behavioral coach and helping them through events that might occur.

Ashley:

Very beneficial. Actually, we will share that link with you in the description. I think it would be a great read.

Ashley:

In summary, Robin, give the average person, or even myself, three takeaway steps that we can take.

Robin:

The first thing, Ashley, is having an investment policy. We set an investment policy with every client we work with. How much are they going to have in stocks? How much are they going to have in bonds? What’s their comfort level? What’s their risk level? I’ll often say, “sleep level.” Do that first, and then whenever the event happens, you’ve already set that in advance.

The second thing is if you are retired and you’re receiving income from your investments, set aside 12-18 months of cash in a money market account, and it’ll be like a paycheck. It’ll pay you every month. No matter what happens, whatever’s going on in the news or on your phone, you know you’ve got that money coming in. You set that aside in advance, so you don’t have to worry about it. 

Thirdly, let’s turn off our phones. Limit the amount of news that we watch.

Ashley:

I think that will be the hardest one.

Robin:

It’s true.

Ashley:

In summary, we are always here to talk to you about your concerns. Pick up the phone and give us a call. Any of the advisors here would love to discuss it with you. As always, we appreciate your trust, and thank you, Robin.

Robin:

Thank you, Ashley.