In early 2009, I was attending a convention for a retirement plan client of ours. My conversations with several of the plan participants at the convention echoed a similar theme. Something along the lines of, “I’m just so glad that I got out my investments when I did! ” I bumped into some of those same participants a couple years later, and their sense of expertise seemed to have eroded. These individuals had a firsthand experience of a rather unfortunate reality. In the spring of 2009, the global economic environment was rather cloudy, to say the least, and the markets had been through a very unpleasant stretch over the last year. During such times, a well-intentioned, long-term saver might take it upon themselves to log in to their retirement account and do something about the losses they are seeing. So, they get out, or almost as worse, they eliminate their contributions going into the plan. They justified and were thankful for the decision they made as they watched the markets continue to fall. Back in the 2008/ 2009 timeframe. I would say that feeling lasted about 18-24 months. Not bad.
Ultimately, though, the anxiety creeps in as they see the market rebound and notice the headlines aren’t quite as fear-based any longer. They think to themselves, “I’m sure there’s another dip coming; I’ll just get back in then.” But the imagined dip only feeds more of the fear that got them there in the first place. Therefore, they can’t muster the courage to reengage their previous investment approach. As the market moves further north, seeking relief, they look for information to support their stance that “there’s no way this can be happening- things don’t feel good yet!” Eventually, they come face to face with the undeniable reality that they messed up. Their seemingly “good” decision of getting out of their investments before the market fell even further has manifested itself into a permanent and pestering refrain of regret.
This brings us to our least favorite word in the dictionary (okay, that may be a slight stretch, but it does add a nice emphasis😊). This word is being used every second these days in media outlets across the globe. If permitted to infiltrate your mind and take over your long-term strategy, this word can alter your future in a very unfortunate way. There’s an ancient saying that goes, “a little leavens the whole lump. “The word that we’re speaking of is “uncertainty.”
Our brains are wired to seek safety. Research shows the brain even prefers physical pain to uncertainty. British researchers found that participants in a study who knew for sure they would receive a painful electric shook felt calmer and less agitated than those who were told they only had a 50 percent chance of getting the shook.
Safety doesn’t equal success or happiness; it simply equals safety. We have created a lie in our minds. We believe that things in the future can be certain. This is a fallacy. Have you ever noticed that there’s no “uncertainty” around good things? Only bad. When we use uncertainty, we always mean to say that we believe we are less safe, and things are about to get worse. We never give uncertainty the same benefit to the upside. No sir! Things are never headed in an uncertainly positive direction. In our culture, certainty is good, and uncertainty is bad. The problem with this mindset is that when it comes to achieving your long-term financial objectives, the opposite is often true. Certainty is costly, and uncertainty is where growth is. Oh boy…
We cannot be certain that we will achieve the financial goals we set out to achieve together. But we can be certain that if certainty is what we value above all else, then we’re pretty certain that if certainty is what we value above all else, then we’re pretty certain that we won’t accomplish the goals we set forth. I’m getting confused 😊. But I think I like what I just said!
Even though we can’t be certain about the future, we can have a very high level of confidence that things will be okay in the face of always existent uncertainty. Why? Because we have reams and reams of actual real-world data to base our observations on. We have no data on which to validate that acting on uncertainty will work… none, zilch, nada.
If we try to control uncertainty by making our investment approach more certain, we might actually wind up putting ourselves more at risk. We know that between 1980 and 2019, for example, there were 8 bear markets for stocks (declines of 20% or more, lasting at least 2 months) and 13 corrections (declines of at least 10%). And what we know for certain, is that a market has never failed to recover from these numerous declines (which were based on some real and tragic event’s) to reach new highs. Through these tumultuous and highly uncertain times, the cost for certainty was unmistakably high.
How do we counteract such harmful behaviors? The answer is simple but putting it into practice is far more difficult. The solution requires self-awareness that we are all hard-wired to seek certainty. Certainty can be a thief in the night, however. We make decisions that we think are going to ease our fears. And they may; for a short time. Let’s trade the guess of potentially being “right” in the short-term for a much more likely (data-supported) likelihood of being right in the long run. Any sense of gaining certainty by adjusting the course is false. You’re simply trading one uncertainty for another.
Have you ever noticed a small nick in your windshield? You didn’t see it for a while. You weren’t even sure when it happened because you were focused on the road and other drivers. But once you noticed it, you couldn’t see anything else? Man is that annoying. Uncertainty is the same way. It’s always there, but once you engage it, it’s all you see.
John Paulos, a widely respected professor of Mathematics at Temple University, stated the following in a recent article around the psychology of safety, ‘uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.” Let’s put the desire for certainty where it belongs… somewhere behind us because the cost of certainty is too covert to place it anywhere else.”
Sources:
- https://www.psychologutoday.com/us/blog/the-right-mindset/202011/why-you-hate-uncertainty-and-how-cope
- https://www.certaintyofuncertainty.com/the-one-thing-certain-we-desire-certainty/
- https://investor.vanguard.com/investor-resources-education/news/3-ways-to-keep-market-uncertainty-in-perspective
Joel Malick currently maintains the Accredited Investment Fiduciary (AIF®) and Accredited Wealth Management Advisor (AWMA®) designations. Joel and his team at EverOak Wealth Co. recognize that running this race for the long term is one of the greatest challenges you’ll face in your lifetime. Thus, they combine critical planning and investment strategies with real-life perspectives. Their consultation is provided at no additional cost to Alliance 403(b) Retirement Plan participants.
