First responders are remarkable, real heroes, charging into danger as others flee. Police officers, firefighters, and military personnel live to protect us so that we can enjoy our freedom.
My family has many friends who were members of the Los Angeles Fire Department, and when I was young, I loved hearing stories of dramatic rescues and magnificent firefights. They appeared larger than life as they detailed their acts of bravery.
One of my roles as a financial planner is to protect clients from greed and fear by managing emotions. I don’t want them to be overly euphoric or severely depressed when it comes to the performance of their portfolios. Instead, I want them to follow their plan to reach their financial goals.
Investors suspend their risk tolerance when the market rises by allocating more money to equities and rejecting bonds and cash because they curtail the portfolio’s rise. When stocks are climbing, I aim to manage our client’s risk levels and curb their enthusiasm to give them realistic expectations based on their financial plan.
When stocks fall, investors get depressed. It feels like the beginning of the end for most, and they want to sell their stocks and abandon their financial plan. When clients are in a poor emotional state, I try to give them hope and encouragement and let them know that bear markets don’t last forever.
The past five years have offered plenty of fear and greed for investors. The S&P 500 fell significantly in 2018, 2020, and 2022, but it has recovered each time, and the index is close to eclipsing its all-time high on a price basis and recently surpassed its peak when you include dividends.
To be fair to first responders, I’m never in harm’s way. I’ve never encountered a burning building or exchanged gunfire with an enemy. I sit at a desk in a climate-controlled office protected from the elements. However, when emotions run hot, I want to protect clients from making catastrophic or disastrous financial decisions.
I receive several investment requests from clients, and if it aligns with their financial plan and moves them closer to their goals, I’ll add it to their account. Of course, if it doesn’t make sense, I’ll say so and give them better options. I make decisions that align with their best interests by gaining a deep understanding of my clients through the financial planning process, regular conversations, and review meetings.
As we approach 2024, it’s an ideal time to revisit your financial plan and investment portfolio to fortify them against potential risks and uncertainties.
Greater love has no one than this, that one lay down his life for his friends. ~ John 15:13
December 13, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.