What’s ‘Psychologically Important’ to You?
Recently the yield on the 10 Year Treasury bond surpassed 3.0%. The media stated that this 3.0% yield is a “psychologically important” level. What does that mean? What makes it psychologically important?
Is it because it’s a round number? Looking at prior headlines using the term “psychologically important”, it appears that may be the case. Did you know that the Dow Jones hit five “psychologically important” levels in 2017? The Dow hit 20,000 early in the year and then went all the way past 25,000 before pulling back. Every 1,000 increment counted as “psychologically important”.
Short-term data and outcomes only are psychologically important to day traders and speculators…and perhaps others that have a fetish for round numbers. It’s all noise to investors, and should be ignored.
But it does present a good question that every investor should ask him/her self. What is psychologically important to you? And which of those is of greatest importance?
Is it important that you…
- Earn a higher return than your friend?
- Beat a defined stock market index each year?
- Generate an income sufficient for your lifestyle needs?
- Don’t lose more than 10% of your account?
Psychological factors influence many of our decisions. In order to make the best decisions, we need to recognize and remember what is most psychologically important to you as an investor.
I am here to help you make thoughtful, deliberate decisions. I recognize emotions and media headlines can sometimes influence us to make hasty and unwise decisions.
Identifying what is most psychologically important to you can help me provide better advice and guidance. Sometimes going through this exercise can clarify and reinforce your goals in investing. Let me know when is a good time to chat.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. All performance referenced is historical and is no guarantee of future results.
The Dow Jones Industrial Average Index is comprised of U.S.-listed stocks of companies that produce other (non-transportation and non-utility) goods and services. The Dow Jones industrial averages are maintained by editors of The Wall Street Journal. While the stock selection process is somewhat subjective, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors, and accurately represents the market sectors covered by the average. The Dow Jones averages are unique in that they are price weighted; therefore, their component weightings are affected only by changes in the stocks’ prices. It is not possible to invest directly in an index.
(c) 2018 The Behavioral Finance Network. Used with permission.