It would be foolish to pretend that the world is the same as it was last month. We are simultaneously dealing with a pandemic/health crisis and a potential financial crisis. One of these issues alone would create challenges but dealing with both at the same time creates an added level of complexity. To make matters worse, it is very difficult to gauge what effect COVID-19 will have on the overall economy over the short and medium-term. All of these crosscurrents are creating extreme volatility and uncertainty in the markets.
What are policymakers doing?
The Fed cut interest rates to 0% and launched a plan to buy $700 billion in US Treasury bonds and mortgage-backed securities. This buying program is called quantitative easing, and it’s intended to add money directly into the economy. How? Interest rates affect the cost of borrowing and savings rates. When interest rates are cut, the cost of borrowing goes down — mortgages, credit card borrowing, and auto loans become less expensive. At the same time, the benefits of saving go down, because the interest earned on savings accounts and certificates of deposit (CDs) is lower. Both of these effects create an environment where people are motived to spend/invest more and save less.
What should I do?
For a brief moment, let us be your expert reminder on how to handle anxiety regarding your investments. If you had invested in the stock market from 1998-2018, your investment would have tripled. If you had missed the best 10 days you would have had half as much and if you had missed the best 20 days you would have LOST money! And many of the best days happen immediately after the worst days. Don’t panic, you are invested for the long term and doing it the right way. Our commitment to you is that we will continue to work to create value for you in this unique environment.
If you have any questions about your investments, the current market situation, or want to start investing? Reach out to us HERE
Humans are not rational investors
While strategies like analyzing historical stock trends, technical analysis, and financial ratios help us make more informed decisions, the average investor still underperforms when compared to the market.
According to research conducted by MagnifyMoney, most investors second guess their earlier decisions around investing.
People tend to invest with their emotions, and often fall short because of this.
But the good news is that each one of us can learn to make more intelligent decisions and avoid the common investing pitfalls. The answer lies in Emotional Intelligence.
What is Emotional Intelligence?
Emotional intelligence (EI) represents the ability to understand and manage one’s own feelings and emotions. Emotionally intelligent people excel at managing relationships with others and making favorable decisions under pressure. Prominent psychologist Daniel Goleman further explains EI by breaking it into five core components:
- Self-Awareness– the ability to understand your own moods, and how that affects others around you
- Self-Regulation– the ability to control certain impulses and moods
- Internal-Motivation– the vision to pursue goals with energy and creativity
- Empathy– the ability to understand what others are feeling and thinking, as well as their emotions
- Social Skills– the ability to manage relationships and build rapport
While all five components play a part in intelligent investing, we pay special attention to both self-awareness and self-regulation. Investors who exhibit high self-awareness recognize when their emotions begin to overtake rational decision-making. Likewise, those with self-regulation can keep their emotions in check and avoid rash decisions they’d be likely to regret.
By properly understanding ourselves through our emotions, our behavior, and our natural response to fear, we can begin to invest more intelligently.
For example, if I know that my natural “fight or flight” instinct kicks in every time a stock performs poorly, I can begin to curb my response. Instead of hastily selling the stock, as I may have done in the past, my self-awareness teaches me that I often make impulsive gut decisions. So, I can take a step back, breathe, and rationally remind myself that investing is a long-term process. Then I proceed with my options from there.
EI > IQ
With regards to investing, emotional intelligence remains even more important than IQ. While IQ enables you to analyze complex investment strategies, EI provides you with the qualities of patience, discipline and perspective; three vital skills for responding to the volatility of the stock market.
What made Warren Buffett such a great investor was not just superior intellect, but emotional fortitude to stay true to his strategy during deep drawdowns.
By pairing a phenomenal strategy with the emotional resilience necessary to follow it, Warren Buffet has become one of the most successful investors ever. Period.
So, by pairing even a decent strategy with the emotional resilience to follow it, you will be further ahead of those of us still falling into those tricky behavioral biases.
An important tool for impactful investing
Not only does EI benefit our investments, but it remains important to everyday life by allowing us to better communicate and connect with our fellow human beings. And humans are very emotional creatures, whether we like to admit it or not.
Ultimately, emotional intelligence proves especially relevant to the realm of impact investing, which revolves around investing in socially responsible causes. And we often select these causes, such as #MeTooMovement, Renewable Energy, and Fair and Equal Working Conditions by using rational means tied to how we feel about each cause.
Self-Awareness leads us to understand that impact investing leverages a significant market opportunity. Self-Regulation keeps us on track when the regular market trends affect our holdings. Internal-Motivation helps us fight the good fight by prioritizing innovation over the old ways of doing things. Empathy creates a bond between us and the companies prioritizing impact along with profit. Social skills allow us to spread the word without being preachy.
In summary, it is extremely important to stay in tune with our emotions, and to understand how they will affect our investment decisions. By learning how to cultivate your emotional intelligence skill set, you will follow in the footsteps of the great investors and enhance your skills as an investor.
Ready to start investing? Reach out to us HERE
What takes 5 minutes and will change your financial life? Setting up recurring investments. How can one little thing make such a big difference? Here are the basics of recurring investments and a comparison of investments saving accounts.
What are recurring investments?
Recurring investments are just what they sound like: Investments you make at a regular tempo into your portfolio. When you remove the human factor and make your investing automatic, you set yourself up for success.
How do they work?
It’s not so much how they work as why they work. When you remove the human element of temptation to spend from your saving and investment strategy, you’re bound to be more successful overall. Think of recurring investments as the personal trainer of your finances. Sure, you could do it on your own, but you’ll be in a better place in the long run if you’ve got it on automatic – it’s all taken care of for you. You still have to do a little work, but the gains will be worth it.
How are savings accounts different then investment accounts?
Savings accounts definitely have a time and a place, that’s for sure, but it isn’t planning for your long-term goals. Savings accounts are great for little emergency funds or saving for your vacation next year, but not so much for your far away future. The average savings account pays interest at under 1%, but the stock market has returned around 7% on average for the past few decades. When you’re ready to make big money moves, you invest.
So while the methodology isn’t so different, the results are – and dramatically so. Consider this:
Contributing $100 per month to a savings account will get you to $12,613.20 after ten years.
Investing that same amount in the same decade will get you to $17,409.45.
Yep. By investing rather than saving, you will have earned just under $5,000.
And the question is…how do you get started?
The first step is to start investing. There are a lot of options when it comes to investing, but not all of them are as transparent as you’d like. Choose with your values in mind as well as your financial future.
The next step is simple: Set up a recurring monthly investment that falls within your budget. Need help finding the right portfolio that aligns with your values and goals, and figuring out how much you should be investing? Reach out to us @ https://investedinterests.com/contact/ and we can help you get started!
Impact Investing refers to investments “made into companies with the intention to generate a measurable, beneficial, social or environmental impact alongside a financial return.” There are two primary reasons that you might choose Impact Investing. One, you are conscious about how your money impacts the world, and two, you want to use your dollars to support social change.
Performance: Will I have to sacrifice returns?
Not at all. You absolutely can make an impact without sacrificing returns. The MSCI KLD 400 Social Index is comprised of companies with high ESG ratings and avoids companies incompatible with specific values-based criteria. This index, which is the oldest ESG index in the US, has shown that ESG can create added value – by outperforming the S&P 500 for the last 25 years.
Measuring Impact : What impact are the companies making?
One advantage of investing with an impact-focused company, such as Invested Interests, is that we and the funds we work with do the heavy lifting for you. We identify the funds that have screened companies that are both making an impact and are poised for growth, and include them in your portfolios. This marriage of purpose and profit sits at the heart of Impact Investing.
When you’re ready to invest your money, you’ll want to do it the right way.
Managing your own investments may not be right for you, and perhaps you don’t want to work with a big company either. Companies, like Invested Interests, are making it easier for people to invest with their values, and not only that, but our only focus is Impact Investing, which gives us the opportunity to give our clients all the attention they deserve.
Dip your toe into Impact Investing with $100 or $10,000, whatever feels right to you. Low fees and diversified portfolios make it nice and easy to dive in and make a difference.
Do you want to start the New Year with aligning your investments with your values?! Reach out to us to get started!!
And finally, a happy and safe Holiday to everyone!!
There’s a fundamental issue with investing in America: Your money might support companies that harm people and the planet, and you probably don’t even realize it.
When we buy products, say for example a smartphone — we’re essentially giving that company a ‘thumbs up’ in approval.
We’re saying, ‘Hey, I like what you’re doing, and here’s more money to keep doing it…’
Well, the same can be true for investing.
When we buy stocks, we’re saying that we approve of that company’s products and policies.
What if I told you the majority of retirement accounts and index funds invest in big oil, coal mining, and tobacco… and the list goes on and on.
Would you give these industries a ‘thumbs up?’
If we look at the state of the world, we can see we’re not always funding what’s best for the planet.
So let’s look at some crazy numbers:
In 2018, over 480,000 people died from tobacco.
We’re actively pumping 96,000 oil and gas wells on public lands for fossil fuels that create 2/3rds of our carbon emissions.
And we dump 1.5 million pounds of trash into our oceans every hour.
So, if we care about climate change, we can stop funding fossil fuels.
And if we want to prevent lung cancer, let’s stop investing in tobacco.
Look, it’s simple. If we want to see change in the world, we don’t have to wait every four years to vote.
We can vote every day by choosing what products we buy, and investing in the things that we care about. It’s called impact investing.
With impact investing, your money supports companies that solve global challenges, instead of causing them.
And if you’re wondering — Yes. Investing with impact also means good business.
Studies show that stocks of companies with high environmental and social impact have actually outperformed the market for 25 years.
So, if we don’t have to compromise our values to build our wealth, then what are we doing?
Want to finally start aligning your values with your investments? Check out our portfolios HERE, if you like what you see, fill out the Get in Touch HERE and we’ll get in touch with you ASAP!
Sources:
What if, right now, you could invest your dollars in only companies that aligned with your values? We believe you should be able to do that, which is why we started Invested Interests. You have more control than you think. It’s time to start pairing your morals with your investments.
But for this to happen, we need a paradigm shift. The financial industry needs to provide radical transparency into the investment options they offer. It’s the only way investors can decide what’s best for their future, society at large, and the planet.
The largest and most popular types of investments in the US right now are mutual funds and ETFs–essentially baskets of securities that typically tout strategy, not individual holdings. So it’s not surprising that people who would never support big oil, tobacco, or weapons manufacturing find themselves invested in these industries. This is the moment to turn our good intentions into action. If you do not want to live in a polluted world, then do not invest in companies that pollute. Even if just one of the holdings in your ETF or mutual fund doesn’t align with your values, you’ve got a moral dilemma.
My question to you: If you really knew where your money was going and the impact it was having, would you make more intentional investing decisions?
For us, transparency and accountability are necessary for building an investment option that drives performance along with purpose. The companies in the mutual funds we work with have to undergo a careful screening process.
You can learn more about the social responsible funds we work with, our personalized portfolios HERE. You can also learn more about the companies in the funds we work with in their respectives websites. Let us help you achieve your investment goals while #InvestingInWhatMatters to you.
Sources:
https://www.cnbc.com/2019/10/02/its-simple-to-align-your-investments-with-your-personal-values.html
- 1
- 2