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It-s-Your-Life

Fear mongering

Through the looking glass

Without diving too deeply into the world of psychology, we humans are mostly motivated by our desire to avoid fear or to increase pleasure. More importantly, it is our perspective what’s fearful and what is pleasurable that motivates us, not necessarily the reality. 

I’ve been following the American primary elections since they began, and the overriding message from the candidates is one of fear. The goal of their rhetoric is to increase the level of fear among voters about a future governed by their opponents, while promising to increase pleasure if votes are cast for them.

What does this have to do with our financial hopes and dreams? Nothing directly. It does affect our state of mind, though, and, from our perspectives of the broader world, our feelings of comfort, fulfillment, safety and happiness. 

To be fair to American politicians, their positioning isn’t unique. Canadian politicians, as well as most in the world, use the same principles to guide their campaigns. Unfortunately, these are the same tactics used by much of the media to entice readers. 

The same strategy is also used to report financial and economic data, with which we are inundated daily. Experts use selective information to arrive at logical conclusions, at least logical in their own minds. Oil down to $20, oil up to $75; higher interest rates, negative interest rates; the falling dollar, rising levels of unemployment - these may be facts on the surface, but in reality they are nothing more than opinions or interpretations of facts dressed up as inevitable conclusions. 

What’s missing, aside from the actual outcome, is the impact this daily barrage of news has on us and our sense of well-being. 

Behind every forecast lives our hopes, fears, and dreams, and each of those data points we read or hear has a personal meaning for all of us. Predictions for oil at a price of $20.00 a barrel, for example, isn’t just a point on a curve, it’s a statement that gets someone thinking about their son, who just purchased his first home in Calgary and is in the early years of his career at a large accounting firm. 

What will happen to the value of his new home? Being new at the firm, if business slows could he be laid off? If he loses his job, can they afford to bring him, and his family, into their home? 

Negative interest rates, while still a theory in Canada, can get people thinking about their aging parents. Perhaps someone’s mother, after her husband died, has moved into an assisted living complex. Today she’s able to cover costs with money from the sale of her old home, along with the interest earned on that money.

If rates go negative, though, what would that mean? Would she be able to cover the costs of her accommodations? Would she have to use capital to pay the bills? Will the money last?

Each forecast we hear holds a personal meaning for us, even if we don’t understand all the details. We do, however, understand enough to worry about how it will affect our lives. 

As old as markets are, the things that have influenced their movements are even older. Scarcity and abundance have been the driving force behind value since we’ve lived in caves, whether it’s the migratory patterns of the woolly mammoths or the strength of the Canadian dollar against the US. 

These fundamentals are a part of our lives, and will continue to be in the years ahead. So, when the analysts, the economists and the TV talking heads start predicting the future, understand two things: 

First, these are just opinions, nothing more. There’s a joke that has made the rounds over the years, that economists have predicted nine out of the last five recessions. 

Second, there’s very little under the sun that is truly different this time. Most events have happened before, and will happen again. 

Your job in all this is to develop a set of mental filters that allow you to maintain a sense of stability in your life, and to not become overly emotional or attached to the predictions of these ‘experts’. 

I’m not suggesting you should bury your head in the sand and deny what’s going on around you. Denial is never a great plan of action. That said, you don’t sit around worrying about weather predictions and snowfall forecasts in October, imagining all the horrible things that might befall you on the snow and ice covered roads during winter. You buy snow tires, put them on a little early, take them off a little late, and drive more carefully than usual during the winter months. Sometimes bad things happen, but mostly they don’t.

The markets, the economy, interest rates, and the price of oil aren’t much different. Expect change, as it is the only constant. Prepare as best as you can for what impacts your financial life, proceed with caution when things are bad, take your time, and finally, gain a measure of comfort knowing that as with all things, these events too shall pass.

Questions or comments: [email protected]

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About the Author

Jeff Stathopulos, CIM, CFP, Portfolio Manager

Jeff is an advisor and partner with The Navigation Team at Scotia Wealth Management.

He lives in Kelowna with his wife Tanya, their two university bound daughters and their canine kids.

You can contact Jeff by email at [email protected]

Website:  www.yourlifeyourplan.ca

The Navigation Team

Scotia Wealth Management

This column is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in this article. The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member Canadian Investor Protection Fund.



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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