Bad financial decisions based on fear, greed

“Greed, like the love of com­fort, is a kind of fear.”

— Cyril Connolly 

It was a play call that will go down in infamy. The New Eng­land Patri­ots had the ball at their own 28 yard line. After a fourth quar­ter Colts touch­down, they still led by six points with only 2:08 left on the clock. Wis­dom would say, “Pro­tect your lead and let your defense win the game.” And although Patri­ots coach, Bill Belichick is famous for edgy, and some would say arro­gant fourth down calls, no one expected he would take the risk in this sit­u­a­tion. The real­ity was clear. The Patri­ots had con­trol of the game in the final stages, but either the fear of Pay­ton Man­ning or the com­fort of Tom Brady caused the leader to make, what would later be seen by many, a sea­son end­ing fourth down deci­sion. With the game all but won, he made an irre­versible deci­sion based on fear or greed.

Money is a very emo­tional topic. It gets even more emo­tional when deci­sions must be made that put your money at risk. I meet with a large num­ber of peo­ple who have a very real fear of invest­ing because of past losses due to exces­sive risk tak­ing or poor invest­ment man­age­ment. I also meet many, sim­ply desir­ing com­fort, who are just hold­ing onto their cur­rent invest­ments and really do not know how much risk they really should be tak­ing with their money. They have no idea if their returns or losses are worth the risk that is being taken.

Maybe you find your­self in a sim­i­lar posi­tion. You have had a great sea­son and find your­self in a posi­tion to fin­ish strong. But either the fear of past expe­ri­ences or too much com­fort in the sta­tus quo is cloud­ing your vision. Maybe your fear has you flee­ing to money mar­ket funds and bank CD’s, or your com­fort has you hold­ing onto the 1980’s “buy and hold” mentality.

The real ques­tion is: Do you know how much risk you SHOULD be taking?

Real­ity Check: The mar­ket today is very dif­fer­ent than it was in the 1980’s or even 10 years ago. The idea of “hang­ing in there” is ridicu­lous for those at or near retire­ment … And frankly, even for those still sav­ing for retirement.

If your “gut” is telling you that some­thing is out of line, lis­ten to it. Take a real inven­tory of your emo­tions and see if you find fear or greed. If you do, some issues prob­a­bly need addressed. If you are pleased with the results of your game plan over the last decade, stick with it.

Real advice for Real peo­ple: Don’t go for it on 4th down, espe­cially late in the game, unless you need to. Take the prof­its you have in your pocket and let your defense take care of the next drive. Unless you have more money than you can han­dle, stuff­ing all your money under your mat­tress is prob­a­bly not the right choice, but know­ing the amount of risk you can man­age and tak­ing mea­sured risks to accom­plish all your finan­cial goals is a rea­son­able call. If you are expe­ri­enc­ing the feel­ings of fear or greed, con­sider con­sult­ing a Cer­ti­fied Finan­cial Plan­ner ™ to help you for­mu­late your play calls with­out the game end­ing drama. 

RC Arse­neau is a Cer­ti­fied Finan­cial Plan­ner and lives with his fam­ily in Delaware. Please sub­mit any ques­tions or topic requests to AskRc@mail.com.

The infor­ma­tion and opin­ions in this col­umn are pro­vided only for edu­ca­tional and enter­tain­ment pur­poses. Any ref­er­ence to a finan­cial prod­uct or strat­egy is not to be con­sid­ered an endorse­ment or rec­om­men­da­tion. The infor­ma­tion is of a gen­eral nature only and does not take into account your indi­vid­ual objec­tives, finan­cial sit­u­a­tion or needs. It should not be used, relied upon, or treated as a sub­sti­tute for spe­cific pro­fes­sional finan­cial, legal or tax advice. Invest­ment Per­for­mance may vary due to tim­ing and expenses. Rc rec­om­mends that you obtain your own inde­pen­dent pro­fes­sional advice before mak­ing any deci­sion in rela­tion to your par­tic­u­lar require­ments or circumstances.

Posted by RC Arseneau on Aug 7 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.