When I talked to my parents last week, my dad provided a thorough education on how to construct a birdhouse that will attract bluebirds and keep the sparrows out. Throughout our conversation, I realized that my retired father had spent hours researching, building, and modifying in his declared war on the bully sparrows. I thought this was awesome! Some might say that it was an unproductive way of spending time. I know this was my Dad’s way of getting away from the constant, negative news of the day, which was causing him anxiety, health issues, etc.
In the last few months, I have had several clients mention they have taken a self-proclaimed “ostrich mentality” or approach to the news, investment and market news in the fallout of COVID-19. They know things are bad, haven’t opened their statements, and concluded that there is nothing productive about worrying. The big question: as an investor, is it helpful or hurtful to have your “head in the sand?”
First off, lets clear up a big misconception about the poor ostrich. They do not stick their heads in the sand to hide. Their heads are small relative to their bodies and, when eating, their heads often appear to disappear into the grass. Additionally, they lay their eggs in holes under the ground. Mothers stick their heads in the holes to care for and rotate the eggs in the nest. So, ostriches aren’t necessarily conflict avoidant, they are productive!
Behavioral psychologists will tell you that avoidance of negative news can have a detrimental impact. People tend to overreact or panic when ultimately faced with reality, leading to poor decision-making and potentially destructive behavior. I would agree with this, to an extent.
When it comes to your financial lives, ignorance isn’t always bliss, especially when it leads to procrastination, avoiding hard decisions, and not accepting the limitations of your resources. Living in ignorance or denial is not a healthy, long-term posture for financial success. But 2020 has been an unusual year, to put it mildly. I would imagine we have all had an ostrich moment or two in the last few months as many of our usual escapes - sports, social events, vacation, etc. - are not available.
And under stress, we don’t always make the best decisions. Many investors understand the effect of emotions on their financial decision-making. They also understand, some through painful past experiences, that a lot of the changes they could make in the middle of a bear market are counterproductive. As human beings, when the stress gets high enough, our executive functioning suffers. Enter the ostrich. But is the ostrich really helping, or is it an unsustainable escape?
In these times, I believe the presence of an advisory relationship provides significant value. An advisor and their team have been trained for these moments. An advisor provides their client the freedom to responsibly take their focus off the news and their portfolio at times. Just as a vacation and time off are a necessary part of a productive and energized workforce, taking a mental and emotional break from financial news can be incredibly helpful.
At Brightworth, our mission is to “empower our clients to focus on what matters most”. For the vast majority, what matters most is family, health, personal relationships, faith, philanthropy, etc. When we have clients tell us that they didn’t watch the markets because they knew we were watching for them, we are grateful for that trust. While we encourage our clients to have a high level of engagement and understand their financial position, know that if you need to, once in a while, indulge your ostrich instinct, it’s okay. Your advisor will be watching out for you.
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