Fear is a funny thing – it often tricks us into exchanging one perceived problem for a much larger one.
I don’t know too many folks who break into a cold sweat when they get into a car to drive a few hours. But let that same person board an airplane, and they are much more likely to experience a heightened sense of fear, even dread.
The National Safety Council estimates your lifetime odds of dying in a car accident at about 1 in 100. For air travel, the lifetime odds are about 1 in 200,000.
In an article on risk, USA Today observed, “driving affords more personal control, making it feel safer. In addition, plane crashes are catastrophic, killing more people at once, which grabs more attention and makes people more sensitive to them. Car crashes happen every day and spread the loss over time, making their combined effects less noticeable.”
Fear causes us to lose our perspective about the risks of life. We magnify and obsess over some, while ignoring and leaving ourselves vulnerable to others. That’s true of planes, cars, investing and a long list of other things.
In my opinion, one of the best reasons to employ a financial advisor is for that advisor to bring some balanced perspective into your life concerning the many financial risks you face. And the best tool to use to provide that perspective is a comprehensive financial plan.
Think about the cars vs. planes comparison. I’ve had a number of people say to me over the years, “I don’t want to participate in the stock market because I don’t want to lose all my money.”
Lose ALL your money? Really? Do you know anyone who has lost ALL their money because of the stock market?
I do. Not many, but the few I know were speculating on one or two red hot dot com stocks with ALL their money back in the dot com era, when they were feeling invincible. But I honestly do not know ANYONE who has lost ALL their money in the stock (or bond) market, who had a reasonably diversified portfolio.
That isn’t to say it has never happened at any time in history. If you were a German stock market investor during World War II, you lost it all. That’s the only example in recent history that comes to mind (there may be others, but they would be similarly remote events).
On the other hand, do you know anyone who ended up with no money because they got to retirement, underestimated how much they would need, failed to save and invest adequately to prepare, and as a result, spent all their money during retirement, only to find they outlived their money? I can think of a long list of those.
One risk is catastrophic, yet remote. The other is chronic and spread out over time, but more common than anyone wants to admit.
So don’t let your motivations for investing in one thing v another be fear based. That’s because a focus on one set of fears (like market volatility), may cause you to totally ignore others (such as adequately diversifying of your sources of retirement income).
Stop trying to avoid risk. That’s impossible.
Work with your advisor to make a plan to manage.