By HPK Provident Advisors
Behavioral finance has always been a fascinating area for me. Observing how investors respond to market events—often overreacting to news or swinging between excessive optimism and deep pessimism—offers valuable insight into the emotional side of investing. The media tends to amplify these emotional reactions. For example, when the market declines 15% from its peak, headlines frequently suggest that a 30% drop is imminent. While severe downturns do happen, they are not the norm.
Market corrections—defined as declines of more than 10%—occur on average about once a year. Bear markets (declines greater than 20%) typically happen roughly every five years. Losses beyond that are far less common, though most long-term investors will likely experience them at some point in their lifetime.
That reality shouldn’t discourage you from investing. Instead, it highlights the importance of having a well-thought-out investment strategy—one that aligns with your financial goals and risk tolerance. It’s also crucial to maintain enough in conservative, liquid assets to cover any near-term cash needs.
We’ve worked with many clients who become understandably anxious when markets fall. Some of them have accumulated substantial wealth over the years, and watching account values fluctuate by tens or even hundreds of thousands of dollars can be unsettling. During these times, it’s common to feel the urge to sell at the bottom and wait to reinvest when things "feel better"—often near market highs. Our role is to coach clients through that emotional turbulence, helping them stay focused on their long-term financial plan.
Personally, I find it helpful to think in percentage terms rather than dollar amounts. For many, it’s psychologically easier to process a 10% decline than to see a drop of $50,000 or more in black-and-white on a statement.
If you need a partner to help you navigate the emotional ups and downs of investing and stay on track toward your financial goals, we’re here to help.
— HPK Provident Advisors
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts may not develop as predicted.