By Jason LaBarge, Financial Advisor and President of LaBarge Financial
As we work through the first quarter of 2025, we’ve seen extensive market volatility, high prices at stores, fears of an economic downturn and generalized anxiety over what the future will bring. Fear and anxiety are breeding grounds for unfortunate financial decisions.
Several months ago, I wrote that letting emotions drive investment decisions can lead to losses. Understanding how your emotions impact your finances is so important, there’s an entire field dedicated to studying the topic: behavioral finance.
It’s a subject the late Daniel Kahneman pioneered, winning the Nobel Prize for Economics in 2002. His book, Thinking, Fast and Slow, extensively describes how biases we aren’t even consciously aware of can influence us to make irrational decisions, not only about finance but a wide range of other subjects as well.
Humans tend to make decisions based on biases unless they lack a bias that addresses a particular situation. This came in handy in our early days: If a primitive human’s bias suggested a deadly predator was about to eat them, reacting by running away had great reward and little downside. Either the threat was real and they avoided being eaten, or the threat was imagined and they merely got some exercise.
Today, it’s a different story. Reacting with fear to economic news can cost thousands of dollars even if the thing you fear is real! Learning to recognize when we’re operating with preconceived ideas and intuitive thinking rather than logical analysis is crucial to keeping our finances safe from hastily-made, unwise decisions.
Avoid “What-Ifs”
Since President Trump took office for his second term, I’ve heard many clients worry about what the future will bring for their retirement accounts. What if, they ask, the president imposes more tariffs or dismantles Social Security?
I tell them, we can’t operate under what-ifs. To be successful investors and savers, we must keep our feet firmly on the ground, working with what’s actually happening now. Even though every fiber of your being might be telling you the stock market will crash and you should sell right now, it’s vital to push past that initial fear response and instead consider the matter from a more rational perspective.
If, as I strive to do with my clients, your financial plan is properly set up with a good blend of risk and safety, odds are you will do more harm than good by changing that plan now. I coach my clients to think of investment dollars as two categories: red and green money.
Red money carries some level of risk. Owning stocks, buying cryptocurrency, investing in futures and even collectibles are all examples of investments that carry varying amounts of risk and would therefore be considered red money.
Green money carries little to no risk. Vehicles with guaranteed returns like CDs, government-backed bonds, pensions and annuities are good examples of green-money assets.
A good portfolio has a blend of red and green money. Red investments make higher returns during good times, while green investments provide safe havens so you don’t have to spend red money when the assets it’s invested in are down.
Giving yourself the ability to profit when there’s money to be made, without losing everything when economic forces beyond your control cause problems in investment markets, can help you avoid making hasty decisions based on feelings.
One of the best safeguards against letting emotions drive your finances is to have a plan, implement it and stick to it whether markets are falling or soaring. With the right, reason-based approach to investing, you can give yourself a much better chance of meeting your retirement goals than the person who reacts with impulsive fear or greed to financial news.
Risk Disclosure: Investing involves risk including the potential loss of principal. No investment
strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
Jason LaBarge, Financial Advisor and President of LaBarge Financial
7 Riggs Avenue, Severna Park, MD 21146 443-647-4321
www.LaBargeFinancial.com
Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), member FINRA/SIPC. Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. MAS and LaBarge Financial are not affiliated entities. 2947216-03/25