Investments trigger a wide range of emotions not just because they affect our current lifestyles but they also fuel our future aspirations and expectations. After all, money stored in investments is nothing more or less than a repository for future income. What will that income be? What will our lives be like?

Consider Michael’s emotions.

• Michael has seen his investments increase to values above what he has ever thought possible. He sees a pattern – investments have increased and will continue to increase. His expectations rise for his immediate and long-time future, and he mentally begins to spend an ever-increasing amount of money in advance. He has moved from feeling excited to elated.
• Now Michael’s investments begin to fall in value. At first he is concerned about the temporary fall in values and then he gets nervous. Then fear and anxiety arrive. He becomes alarmed and finally frightened. Michael might even cash in his mutual fund investments along with so many of his friends.
• Later Michael’s investments creep up in price. He is relieved and becomes somewhat more optimistic. As investment values climb more he moves back to being excited and elated. If Michael had indeed previously cashed out of investments at or near their lowest values, this might be the time when he would finally become optimistic enough to take another plunge into the market along with so many of his friends.

Emotions like this are common for investors. They help typical investors buy high – after stocks have risen in value – and sell low – after they have fallen. According to the 2006 Dalbar study of Quantitative Analysis of Investor Behavior, the average equity fund investor – who typically bought stocks when they were good investments and sold when they were bad – had a return of 4.3% per year from 1987 through 2006, even though the equity funds themselves returned 11.8% per year over the same time period. Fear and greed encouraged typical investors to “time” the market, and they were punished accordingly.

Aristotle believed that extreme emotions like fear and greed are destructive. In the financial area, they clearly are. What can you do to avoid the manic / depressive approach to money? How can you avoid being driven entirely by outside circumstances into one extreme mood or the other?

The key is not just being aware of what is happening now but also putting the current “now” into a longer-term perspective. It means balancing short-term and long-term needs. It means taking excessive emotion out of the picture and avoiding rash decisions.

This is an issue not just when stocks have fallen and you sell all of your stocks because you are afraid of the future. The greed of treating rapidly expanding stock values (or home equity) as a never-ending cash machine to be spent as desired can be just as debilitating as the current situation. The balancing and middle road can help you deal with your natural fear and greed so that you can concentrate on what is really important for you, your family and your community. Then you can enjoy and experience life.

The greed driving you to look for the fastest rising investment and throw all of your money into it will also yield painful results in the long run. The fear and greed draw your attention to money. Money becomes your focus, not what the money is there to achieve. Take a step back, look at your long term goals, separate your emotions from this decision-making process, and put your focus back on what is important to you – your family, community… what you find enjoyable.

How our clients enjoy and contribute – savoring and saving the world.

This past year was our ninth Fischer on Finance sponsored Charitable Match. Personal thanks again to everyone who is helping to make the world a better place. Here is a list of our clients’ favorite charities in 2008:

Adath Jeshurun: Siegel-Jacobs Fund
Advent College Presentation of Mary
Alzheimers Association
Animal Humane Society
Birth Right
City Songs in Campfire
Community Kitchen of North Iowa
Faribault Area Food Shelf
Grant County Food Shelf
Hands Together
Jewish Family & Children Service
Jewish Free Loan Program
Last Hope
MAP for Nonprofits
Mesothelioma Applied Research Foundation
MJ Fox Foundation for Parkinson’s Research
Pancreatic Cancer Action Network
Sheldon Theatre Brass Band
St James Lutheran Church
St. Patrick School
Seed Savers Exchange
Stebens Children Theater
STEP
West Bethel United Methodist Church


Each of you was able to leverage your own contribution through our match. The total, including our match, was $7,070 this year. Thank you again.