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The Letter F - Fear: an Opportunity or Threat for Investors in the Capital Market?

Franklin D. Roosevelt addressed the people of the United States in 1933 and stated, “…the only thing we have to fear is fear itself…”

 

During the midst of the Great Depression, FDR’s intention was to encourage the citizens of the US to look beyond the fears that were paralyzing them, and to stop perpetuating what was a vicious cycle founded in fear.


This is important to investors for two reasons,

  • The first is that fear of losses is a much more powerful force than the hope of gains.  Fear perpetuates itself, is fueled further by the media and continues in a vicious circle, perhaps more so than ever before.  Own investments that are small, agile and nimble enough in their structure in order to capitalize on this fear and resulting irrational declines in various investments.  Assuming that you are not going to succumb to fear, be positioned to profit in it.
  • Recognize that fear is becoming a more significant influence over market direction, and position your overall portfolio such that you are less subject to irrational declines.  Although it may only be temporary, if one of your objectives is to reduce overall portfolio volatility, then you must consider investments and an overall plan which has risk management in place designed to reduce fear driven declines on your money.  This is of particular importance for investors nearing or into retirement and drawing on their savings.

 

Investment markets are not the only place where fear begets fear.  Interesting to note that there have not been any recorded deaths since 1979 due to Australia’s infamous deadly spiders. Take a look here for an interesting comparison of two different types of fear. Keep your money invested in an appropriate, agile and risk-conscious plan in order to pay for that trip to Australia that you are going to re-book.

 

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