Blame it on Your Limbic System

On August 27, 2010, the Dow Jones Industrial Average closed at 10,150.65. Earlier this Spring, it closed as high as 18,154.14. On August 28, 2015, it closed at 16,643 – after experiencing a tumultuous week overall including a 1,000 point drop in a single day.

In context, it’s easy to put the natural ups and downs of the market in perspective. It’s easy to look at a 1,000 point drop as simply a blip in the road. But that isn’t what happened last week.

Most media outlets freaked out. What happened in a day overshadowed what happened over the period of five years. And let’s not even talk about this fact: The Dow Jones Industrial Average isn’t “the market;” nor is it a broad indicator of the economy.

Perhaps last week’s decline spooked you, too.

So, instead of viewing the market’s dip as an opportunity to add to your portfolio (or simply do nothing), you panicked. Guess what? You can blame it on your brain!

Just as the stock market craves certainty, so does your brain.

And as soon as it senses any degree of uncertainty, your limbic system goes into “flight or fright” mode. “Because everything we do in life is based on our brain’s drive to minimize danger and maximize reward.”

The future is always unknown, and you can rarely predict what’s going to happen next. When it comes to my business, there are times when I sure wish this truth weren’t the case. And I know my clients wish the same when it comes to their money.

There is a biological reason why you react to stock market declines. But if that reaction is to sell rather than to buy (or sit tight), what is natural is working against you.

Last week was good for investors with a financial strategy (if you don’t have one, you have homework to do; let’s talk). And, it was a great for all of us: it was the perfect invitation to re-assess your relationship to and comfort with uncertainty.

Or rather, it was a wonderful reminder as to why embracing uncertainty is key to…

  • seeing possibilities you might otherwise miss
  • taking decisive action despite having imperfect information
  • resisting the temptation to do nothing and remain in neutral
  • being creative and improvisational
  • having a mindset for success – even if you experience a few failures on the road to success!

On a scale of 1-10, how would you rate yourself when it comes to embracing the uncertainty that exists in your life – and your finances?

What techniques do you use? What metrics do you measure? Do you plan? When you plan, do you prepare for multiple outcomes? When you evaluate your results, do you also assess your process?

As I said recently, smart money moves aren’t really complicated. But they do require you to unequivocally embrace uncertainty!

“Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.” John Allen Paulos

 

p.s. Got the hutzpah to pitch your financial fitness? (Think “Shark Tank” for your money.) Well, I’m one of the panelist for PITCH YOUR FINANCIAL FITNESS: Five Women. Five Pitches. One Evening of Sound Financial Advice. The casting call is open until September 10th. If interested, click here to complete the application.

p.p.s. Find Your Financial Sweet Spot will run again starting in September. If you have an interest in being part of the next group – in discovering the financial moves you need to make to achieve your goals with ease, click here.

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