Smart Money: Fight or Flight?

Smart Money

At Endeavour Wealth Management, we talk a lot about creating "Smart Money". This is a concept we created to describe money that works for you as an individual and for your family. One aspect of having Smart Money is that you are only taking the risks that you are comfortable with, or in other words, the stress that you are comfortable with. It's often overlooked but investing successfully not only means managing for the return you want (that's obvious) but also managing for the stress level you can handle and stay disciplined to your overall strategy.

Just yesterday I was scrolling through my Facebook feed and came across one of contacts who was expressing that he felt like was at an impasse over his current investments. With all that was going on in the world, with interest rate inversions, he is in the camp that the US is heading for a recession within the next 18 months. This seems to be leaving him somewhat paralyzed in his investment strategy, clearly the stress is building somewhat. This individual is clearly a very studious person who does a lot of reading on various economic topics. His feelings are not uncommon, and I have conversations with clients about this on a regular basis especially during times of high political risk as we are seeing today all over the world.

In assisting us in making "Smart Money Decisions" it's important that we also understand the nature of stress especially when it is caused by our personal finances. It has been firmly established by researchers that the chemical reactions in the human brain to basic instincts such as sex, food and survival are also stimulated by money. Dopamine, the chemical neurotransmitter that passes on messages to neurons about pleasure and happiness can be associated with the idea of winning money or having a big investment win.

Negative Chemicals Related to Money Loss

This also works the other way as it is documented that losses of money can release "negative chemicals" such as adrenaline or cortisol. The reaction that releases these chemicals is ultimately related to stress.  The issue is that the body is really bad at distinguishing physical threats and a stock market crash. What's even worse is that your reaction will likely start before the crash happens, in fact even someone mentioning that they believe a crash is coming will immediately trigger a stress reaction and yet nothing has happened.

Stress can be a good thing as the fight or flight instinct can be the reaction that we need to survive and even to thrive. I have recently started listening to a podcast called "Start" based out of Winnipeg where the hosts interview local entrepreneurs and share their story. A common thread in each of the stories is that at a certain point they felt extreme stress in starting their business, but it was also that stress that helped them to push through and to thrive. So, stress can be a good thing, but it can also be unhealthy if it is carried for extended periods of time.

With money this stress often comes from the fear of the unknown future.

The feeling of helplessness, that you have no control over what happens. This is where advisors need to step up their game. A dangerous promise that many advisors make is that they can relieve all your investment stress. This is an unrealistic promise because the reality is that there will always be market forces at work in any portfolio that are out of your control and your advisor's as well.

But by understanding the root cause of your stress, an advisor can help to ensure that you only experience a level of stress that you can be comfortable with. Knowing that you have a plan for a future, knowing that you are on track to achieve your goals, knowing that market downturns will happen and knowing that you have someone in your corner to guide you through and help keep you on track are just a few of the ways that advisors can be there for you. You might not be able to be able to completely eliminate stress, but it can be controlled and mitigated. This will help you to be successful and healthy.

- Grant White, CIM, CFP

Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.