VIDEO: It Can Be Hard To Do Nothing
“Here’s an interesting fact – Did you know that a during a penalty kick in soccer, the goal keeper has the best chance of stopping the shot by staying still and not diving left or right? It’s true – there are studies to prove it. The keeper has a 33% chance of stopping the shot if they stay in the center of the goal, a 14% chance if they move the left, and 13% if diving to the right. Interesting, because goalies only stand still 6% of the time.
That may be because of psychological term called “Norm Theory.” Since the norm is for the goalie to move right or left, Norm Theory implies that goalkeepers tend to have worse feelings when they are scored on and they didn’t do anything (meaning they stayed in the center), as opposed to when they did something (meaning they moved right or left). This leads to a bias for action, or for “doing something”.
Okay – Now let’s apply this concept to investing. It’s hard to do nothing. This is especially true with the constant bombardment of news and data that come at us from every direction. Investors hear things in the media or from friends and colleagues, and want to make changes in their portfolios based on all the chatter.
However, like in soccer, the best thing when investing is to have a strategic long-term plan based on your lifestyle and needs, and do nothing even when you feel like you need to do something. It’s hard, I know, but don’t kid yourself that you always have to make a change.
Chances are not making an investment change may be the smartest thing to do of all your options.
A good test is to see how much emotional reaction you have to the next market correction. If you feel an overwhelming need to do something the next time the markets correct 5, 10 or even 20%, maybe you have less tolerance for risk than you originally thought when you created your portfolio.
If that’s the case, call us or visit our website. We can help assess your tolerance for risk through a concise online test that quantifies your risk tolerance in a new, fun, and intriguing way built on decades of academic research and a scientific framework that won the Nobel Prize for Economics.”
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