SOMETIMES IT'S GOOD TO DO NOTHING

The stock market is bouncing up and down. (So what else is new?) Interest rates could go higher or lower. (….And?) Housing prices are getting very fluttery. (How quaint.) There are rumors that your company will be laying off workers (Update that resume.) SO WHAT SHOULD YOU DO? We have all been conditioned to react to such phenomena. How? By panicky phone calls from stockbrokers., By unsubtle warnings from lenders. By anxious suggestions from real estate salespeople. By news stories and headlines that are, by the nature of the beast, supposed to shock you, to get your attention. By water cooler gossip. By parents and/or kids who think you don’t know anything. So, all too often you DO do something. You’ll sell or buy shares of stocks and mutual funds. You’ll switch bank accounts. You’ll put your house on the market, or take it off the market. You’ll quit your job and/or start looking for another. And if you don’t actually DO something, you fret and sweat that you shouldn’t be doing nothing. Please, take a deep breath, count to ten, and listen to me. Sometimes it’s good to do nothing. Maybe more than sometimes. Maybe often. Acting on impulse is the worst enemy of financial sanity. First, whatever is motivating you to act might not be real. Facts are elusive in this wired age. Second, the stimulus to action might come from someone (a stockbroker?) who has an agenda---to get you to trade, for better or for worse, as often as possible. Third, you probably haven’t done the homework or research to validate your decision to do something. Fourth, even if you do research alternative actions, you could still make a wrong decision. This is particularly true if you’re trying to second-guess the stock market or the interest rate arena. Because whatever you decide to do (say, sell shares of stock) there is someone taking the opposite action (buying those same shares.) Who is right? Think back to the last time you made an impulsive decision to do something. How would you have fared if you did nothing? If you just waited for the crisis or the panic or the stampede to end? Ask yourself too, if you did do something that turned out to be wrong, what will it take for you to recover from your mistake? That has to be part of the overall equation. Doing nothing does not mean ignoring the call to action. There well may be cause for concern. But before you leap, you must look, and measure, and calculate, and analyze the source of the call to action. Again---is it a stockbroker, or someone else who might stand to gain by whatever action you do take? Don’t get me wrong. Lots of those action-motivators (such as stock brokers) do have their clients’ best interests in mind. But you shouldn’t have to mind-read someone every time there’s a tick or a tock. There’s a lot to be said for taking a deep breath and counting to ten before you jump off the handle. Maybe even better---take ten deep breaths and count to 100. Don’t let impulse waste you. This article supplements Chapter 15, pages 395-401 in Personal Finance. Access the textbook by clicking on the box in the right column.