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Dealing with Investor Anxiety With Chad Horning

MoneyWise | Sep 2, 2022

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Show Notes

“Do not be anxious about anything, but in everything by prayer and supplication with thanksgiving let your requests be made known to God.” - Philippians 4:6. As we face new economic challenges, investors are certainly feeling anxious about events on Wall Street. We’ll talk to Chad Horning about how to deal with that anxiety.

Chad Horning is the president of Praxis Mutual Funds, a leading faith-based family of mutual funds, and an underwriter of this program.

  • On this program, Horning says Praxis tries to convey that during chaotic times like these, it’s important to remember that as people of faith, we are encouraged not to worry, but to put our trust in the Lord for all that we need.
  • Of course, we live in the world as it is with its obligations and needs. Investment portfolios invested well can help smooth out our financial needs over our many stages of life. But there are times when we’ll be tested: tested by the financial markets that go up and down and not always when it’s convenient for us.
  • PREPARING FOR UPS AND DOWNS
  • How should investors plan for the inevitable ups and downs of investing?
  • It’s typical for financial advisors to attempt to assess the risk tolerance of their clients at the beginning of a relationship.
  • Many advisors do this by asking what you would do or how you would feel in a hypothetical market downturn. They do this, of course, so they can place you in a portfolio that’s expected to perform in a certain way in different environments.
  • For example, if you told your advisor that you could tolerate a downside to your portfolio … say down 20% or more in a short period because you’d like to get higher returns over time, the advisor would probably invest more aggressively for you.
  • They would likely include more stocks and fewer bonds in your account. The question is, will you be able to tolerate the periods when your portfolio loses money and yet stay in the markets so you can benefit from markets over the long term?
  • THE SELF-AWARE INVESTOR
  • It’s important to be a self-aware investor! That’s because the rubber hits the road when a downturn eventually arrives. It inevitably feels different than you expected it would during that hypothetical exercise. Now it’s real.
  • It can be easy to justify your prior cavalier attitude about risk when you’re in the middle of it. It may also be tempting to dwell on the unique factors that caused the downturn. Somehow, they feel different and scarier than the generic reasons for a hypothetical downturn you’d imagined in your conversation with an advisor.
  • The sell-off we experienced earlier this year was accompanied by the ongoing effects of the COVID-19 pandemic, a war in Ukraine, the highest inflation since the early 1980s and more. These are scary things for investors to weigh.
  • And so, knowing what you know about the state of the world and the number of things that could go wrong, you might be tempted to react differently than you thought you would.
  • DON’T MAKE FEAR-BASED DECISIONS
  • We’re hard-wired to respond to threats quickly. Our ancestors – the ones who survived – were effective at “fighting” or “fleeing” to avoid danger. This instinct is powerful. In the context of investing, the urge to sell when things are scary might be your first impulse, but it can be detrimental to your investment portfolio, and therefore, to your financial future.
  • It’s often better to wait and talk with a professional advisor, rather than making a quick decision.
  • No one knows when the equity markets will settle down or what might soothe investors’ collective anxiety. We don’t know if the Federal Reserve will be able to tame inflation without causing a recession and we don’t know how long inflation will erode the purchasing power of income. But if history is a guide, taking your time and not making rash decisions in the face of fear is usually a wise choice.
  • Markets have always been risky, so the recent experience should come as no surprise. Your reaction and your feelings in the face of the current circumstances may have surprised you. If they did, contact an advisor to talk through what might have changed in your situation to require an adjustment. If you said you would sit tight in the face of a bear market, you have your answer.
  • Learn more about Praxis Mutual Funds at PraxisMutualFunds.com.

On this program, Rob also answers listener questions:

  • I have $134k on my mortgage and $100k in savings. Should I pay down my mortgage or keep the savings given the inflation we're facing?
  • We have student loan debt and payday loan debt. We'd like to get our finances turned around so we can start saving for retirement. What are the best first steps?

Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to Questions@MoneyWise.org. Also, visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app.

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