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Stimulus

Published by: Lytle Rather, CFP® Date: February 07, 2017

Viktor Frankl, a Holocaust survivor’ said; “Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and freedom”. Currently, we are in an environment where there is stimulus everywhere we turn. A lot of this is induced by the technology we use daily. With our phones and tablets we can, among countless other things, read the paper, check our email, obtain news, read Twitter and let the world in on snippets of our lives through Instagram and Snapchat. Like Pavlov’s dog, we have been conditioned to instinctively respond to these stimuli quickly and often.

I am told Facebook is ablaze with social and political opinions from all sides that are filled with passion and vitriol. The response to this stimulus is reactionary and most often rooted in core belief systems. Both sides are deeply entrenched in their beliefs, and I do not think a hastily written opinion on social media has much chance of convincing either side to change their mind.

There is stimulus from the relationships we are in. Our days are spent with family, friends and co-workers. Words and actions are constants in these relationships and there is a regular opportunity to choose how we respond. Too often we blame our anger, fear or emotion on someone or some action. My kids hear from me regularly that blaming anyone or anything for their anger is like blaming their shoelace for being tied too tight. They have the power to choose their response just like they have the power to untie their shoelace and free themselves from the pressure.

We are inundated with stimulus from the financial world. Interest rates are going up. The Dow Jones is breaking records. You need to own gold. International investing is too risky. How do we choose to respond to these types of stimuli? For a majority of investors, the response does not lead to growth and freedom. Many times we respond quickly and often as the headlines shift. At other times, we are led to the wrong conclusions based on inaccurate financial beliefs. Emotion is often the driver of financial decisions for many as they look to avoid pain (sell low) or gain pleasure (buy high). How should we, as investors, choose our response in the space between stimulus and action?

First, we should build our investment plan around what is most important to each of us. We should not react to anything until we answer the question of why we want to invest. Second, our portfolio risk (exposure to the stock market) should be driven by our specific goals. Risk tolerance shouldn’t override risk capacity. Third, we should expect to make adjustments to our portfolio and we should have a non-emotional mechanism in place to do just that before the next big thing happens. Choosing to respond to the endless stimuli by thoughtfully building a plan around what is most important allows us to better experience financial growth. There is freedom in the space between stimulus and action. Use it to make life better.

Lytle Rather, CFP® is co-founder of Rather & Kittrell.  He is available at lrather@rkcapital.com