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What Are You Afraid Of?

What Are You Afraid Of?

November 14, 2023

When it comes to investing money there are basically two phases, the accumulation phase and the deaccumulation or spending phase. I'm going to talk about the fear I commonly see when I am talking to people who are in the spending phase. Their number one fear is running out of money. But here's what I see happening over and over.

I read a post that said, the next generation is set to inherit close to 30 Trillion dollars. That's trillion, with a T! Why do the Baby Boomers have 30 Trillion Dollars to leave to their kids and grandkids? They didn't run out of money! When people experience a bad year with their portfolios like in 2001, 2008 and 2022 they think, if my portfolio was down 20% this year, if that continues for 5 more years I'll have nothing. Of course that never happens.

This is called, recency bias. Recency bias often misleads us into thinking what has happened in the past will continue into the future. Thus the fear of running out of money. I wrote a blog that might help calm some of your fears. It's called, The Greatest Chart of All Time. You can read it here:

If you get past your fear of running out of money, then it turns out the thing you are really afraid of is volatility. The up and down nature of investing. After reading my blog piece, you see the worst 30 year return for the S&P 500 was 7.8%. Okay. I can work with that. But what about those years like 2001 and 2008 and 2022? How do I avoid those?

The answer is, you can't. But there are strategies to help you avoid taking money out of a portfolio when we inevitably have those bad years. If this is something that applies to you and you want to talk, schedule a time to chat with me here: Thanks for reading! KB