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As we go to the polls today to vote for a new president in 2025, I thought about President Franklin Roosevelt’s inaugural address in 1933.
Gary Logan
Wes Shannon
In this speech, given during the depths of the Great Depression, FDR famously uttered: “The only thing we have to fear is fear itself.” These words remain powerful and relevant to our generation today.
Especially when it comes to investing in stocks and stock funds.
Dictionary.com defines fear as “a distressing emotion aroused by impending danger, evil, pain, etc., whether the threat is real or imagined.”
The last part of this definition is why we should fear, fear.
As a very good therapist once told me: “Feelings are real but not always true.” Think about that statement. When have you really felt something, but it wasn’t real? I remember as a child being fearful of a monster in the closet. My fear was very real, but there wasn’t any monster in the closet. In my life I have felt someone didn’t like me or didn’t love me only to find out that they did. My feeling was real, but it wasn’t true.
When it comes to investing in the stock market, people with a lack of knowledge of how the markets work are susceptible to fear. We generally fear things we don’t know. Many people today invest in the stock market through a 401(k) or an IRA without having taken the time to understand how stock markets work. Historically, stocks have been very good investments given 15 or more years. They are long term. But there is a very high chance that in a short period an investor's investment will decline in value.
This past week I received an annual statement for a mutual fund I have invested in through my IRA.
The statement said that from September 2014 through August of 2024 — 10 years — it had an average return of plus-13.15%. A $10,000 investment grew to $34,398 in those 10 years. However, when I looked at the details of the returns in December of 2021 it was worth a bit over $29,000 and by September of 2022 it was worth less than $24,000. That is a more than $5,000 decline in nine months. I had to remind myself that while 10 years looks so great it was very stressful during the year 2022 and it took until about November 2023 before it was back at $29,000.
The point is that the stock market is a long-term investment, not a short-term one. Failing to understand this is where fear can cause so much damage.
Fear is natural but acting on it before determining if it is real or imagined is when fear can cause great harm.
In January 2022, I was fearful we were in for a prolonged downturn in the stock market. Had that fear caused me to panic and take action to sell off my investments, I would have lost a lot of money. I did not act on that fear because I knew the money in the market was for a long-term goal. I had other funds in short-term investments to support my current cash needs.
Having knowledge and a balance of funds between short-term and long-term needs protects us from allowing fear to drive poor decisions.
A vendor of a financial services company told me he likes to ask three questions to help people understand the stock market.
Here are those questions:
True or False? In the past 100 years of the U.S. stock market, the market has recovered to where it was before a downturn. Answer: True.
True or False? In the last 100 years of the U.S. stock market, the value of the market has achieved a new all-time high after recovering from a downturn. Answer: True.
If both statements are true, why does anyone lose money in the U.S. stock market? (Fear is a greater emotion than greed).
So, if you have planned well and have short-term liquid assets for your immediate and short-term needs and goals and you understand that stock investing is long term, you should not fear.
As always, I recommend that you work with a Certified Financial Planner™ professional. Look for a financial adviser with the CFP® marks beside their name.
They will help protect you from the dangers of fear.
Wes Shannon CFP® is a Certified Financial Planning Professional for Brazos Wealth Advisors in Fort Worth.