Speaker 1:
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Brendan Freeman:
Welcome to the First Business Bank podcast. I'm Brendan Freeman, and I'm the president of Private Wealth at First Business Bank. I'll be your host today for our podcast, where we explore the dangers of emotional investing and how that can play into your investment decisions. To go through this topic with me today, I've invited my colleague Matt Kza, who's our Director of Private Wealth and a wealth advisor working with individuals, families, and other organizations to join me. Matt, would you mind taking a moment to introduce yourself to our audience?
Matt Krutza:
Yeah, thanks Brendan, and thanks for having me on this morning. Matt Krutza, director of Private Wealth here at First Business Bank. I have roughly over 13 years of experience in the wealth management space. As Brendan had mentioned, I act in a dual role here at First Business Bank, serving as a wealth advisor for clients, but then also have a team of wealth advisors that I manage and just work really closely with clients, individuals, companies, to make sure that we can meet and, and exceed their expectations in terms of their goals and dreams. So thanks Brendan for having me today. It's a pleasure.
Brendan Freeman:
Great, Matt, we're glad you're here today. Thanks for joining me. As the title of our podcast implies many investors can get caught up in emotional decisions when it comes to investing. And so I wanna dig into this a little bit with you, and hopefully with, with a lot of the information that's out there, maybe pet some of our listeners at ease, by following some of the things that we, we dig into. So, fear of making a big mistake can oftentimes take over when you're thinking about investing, and it can lead to a lot of challenge emotionally for clients and investors. In fact, one study shows that 66% of investors have made some type of impulsive or emotionally charged investment decision that they later regret, and almost half of investors report having trouble keeping emotions out of investing. Um, so with that as our backdrop, I think it's important that we dig into this subject. And so, Matt, if you don't mind, let's just start and maybe just talk a little bit about why it's important to avoid emotional investing decisions as a long-term investor.
Matt Krutza:
Great question, Brendan. And, and thanks again. And I mean, I think when everybody can relate to this in a lot of ways, when you think about a lot of the uncertainty that we've, we've seen in the marketplace, not only recently today, I mean, but going back, you know, really over the last 15 years, 2008, you think about the financial crisis, 2020, the global pandemic where all of us, I think were thinking about, okay, what, what, what is the next dig? Last year, we had the unsettling disturbance between Russia and Ukraine and the, and the war. And then really, you know, as it sits today, you know, any kind of information that anybody reads today, it's all about inflation. And so these times of uncertainty happen frequent, and, and that certainly brings up an emotional time in our lives and where we can and sometimes be prone to making emotional decisions.
And as it relates to investing, that can be, that can be critical. The risk of making investment decisions based on emotions, for example, with fear or greed, can make it extremely difficult to stay on track and ultimately achieve your long-term financial goals. So we know that fear and greed are two kind of really dominant emotions that often drive investment decisions. So fear can grip investors during the market downturns, leading to at sometimes panic selling and forgetting a previously laid out, oftentimes well thought out long-term financial plan. You know, and one example of this, Brendan and I would say is kind of financial 1 0 1 in the sense of how you make money from a market perspective. We know two things. Number one is, you know, you make money when you, when you, when you buy low and you sell high, and, and when you're dealing with emotions, your thought process can actually be reversed. And so when you make an emotional and and invested decision, oftentimes you can be in a situation where you're actually buying high and selling low. And so again, just in, in, in turn, it really makes it difficult to really achieve track and, and adhere to that important long-term financial goals that clients have.
Brendan Freeman:
Well, thanks, Matt. You know, I guess I'd, I'd wonder how can an investor stay disciplined and stick to their investment plan, especially when things, get shaky and uncertain and volatile?
Matt Krutza:
Yeah, it's, it's a, it's a good question, Brandon. I, I would, I would say three things. Number one, probably the most important thing is, is, is stay with your plan. Stay committed to it. You know, when, when we work with clients and we talk about putting that plan and, and developing that plan, there's a lot that goes into it. And oftentimes it's around what their goals are, what's important to them, what their values are, you know, so a couple examples I would, I would share as, you know, values around independence or, or family or certain experiences they, that they wanna accomplish as they, as they get older in life and ultimately retire. Or maybe it's being able to provide money for their kids in, in college education, maybe retiring at age 58 as an example, or, you know, an annual trip to a great place like Hawaii.
You know, tho those are great things that we talk with clients about and building out, you know, their, their customized plan. And so there's emotional attachment to that, those plans. And reminding clients that staying true to that plan, not making emotional decisions that would uproot the potential for us to, to meet success with that plan, I think is extremely important. I would also add to that, Brendan, that, you know, one thing we can do is to test that plan over time, right? Stress tested is like what we like to call it. And, and there's multiple ways that we can do that to ensure that, you know, certainly we can't plan for every uncertain event that's set to, to, to come our way, but we can kind of prepare for the un unexpected the best we can. And so I would say that to stress test that plan is also important.
The second part I would say is, is stay disciplined. Just like anything else, if you stay disciplined over time, good things are gonna happen, you know, and the same is, is true in investing. So I think systematic investing can be extremely advantageous for clients. Dollar cost averaging is, is one thing that we strive and, and educate our clients on. And, and really all that is Brendan obviously is, is just making sure that clients put the same amount of money in every month and, and solely but surely kind of build towards those goals and aspirations that they have and meet the plan and, and what they wanna accomplish. So that's really important, staying disciplined. And then the last thing I would say is just, is managing and checking in on your portfolio. And that's really kind of twofold. I would say number one is know your investments and why you're, you're in them.
You should know that. And then the second part is meet with your advisor or your financial expert, at least on an annual basis to update your financial plan. That is so extremely important because things change. We all can, can relate to that. There's material changes that happen all the time, and as a result of that, our risk tolerance change as well. And so meeting and updating that plan is extremely important to make sure that as we evolve and get closer to retirement, that we're doing the prudent things to make sure that our plan is successful.
Brendan Freeman:
Matt, it all sounds so easy, right? But it's the execution on it that really matters. And I think about you know, how many of us might, during volatile times just not open the mail or just not check in on the account? And so you bring up some great points around discipline and around really checking in and making sure that your investments are doing what you think they should be doing. To that point, I guess, what are some strategies for diversifying an investment portfolio to reduce risk as you think about it?
Matt Krutza:
I think the biggest thing, Brendan, that you can do, or what clients can do is, is plan out their investment strategy. There's, there's one thing in particular, a successful investment strategy begins and kind of starts with asset allocation. So making sure that within the portfolio there's a mix of assets, whether it's stocks, bonds, cash equivalents, alternative investments that are appropriate for the client's long-term objectives. The asset mix should reasonably have expectations for risk and return, and used diversified investment strategies to avoid exposure to unnecessary risk. And so recognizing that turbulence in the market happens, your investment strategy can include guidelines with that in mind. And, you know, for one example I would give you is a core and satellite approach where investments are buy and hold principles for most of the portfolio. And it's combined with tactical investments based on shorter term market outlooks. So diversification can sometimes work to offset risk of certain holdings. While it does not mean guaranteed profits or prevent losses, diversification can certainly help. And again, that's where a clear investment strategy, Brendan, can really be beneficial for clients. I
Brendan Freeman:
Get it. Yeah. With the core and satellite approach, kind of having that core diversified portfolio, but then maybe based on some, and that's a longer term portfolio, but then maybe based on some things that might be going on short term, you know, perhaps even with smaller dollar amounts of the overall asset allocation, utilizing those tactically, I've seen that approach not for everyone, but that's certainly an approach. And I think defining that, understanding it and if that's what you're doing, sticking with it is, is important. And that's what you're trying to say.
Matt Krutza:
Yeah, exactly.
Brendan Freeman:
How about like, really getting under the hood here, what are some techniques that investors can use to evaluate the quality of their investment decisions?
Matt Krutza:
Yeah, this is an important one, right? Because you wanna make sure that how you're invested is the right investments. And I think it goes back to kind of inspect what you can expect, which the best way to do that, I would say, Brennan, is making sure that you compare your portfolio. So the asset mix that's within your portfolio against other market benchmarks, that's extremely important. As I might have mentioned, asset allocation is the primary driver of portfolio returns that we as investors can control. So with a well diversified portfolio, again, that includes multiple asset classes, try comparing the overall performance of your portfolio to other benchmarks. That way you can have a good and better sense of understanding whether your investments are performing and how they're performing in comparison to a peer group. That's critically important. We do that all the time with our clients and, and so they can see how we have them invested and, and again, against a peer group to making sure that what we have is, is well suited for a client.
Brendan Freeman:
So we're living in a really uncertain time. And kind of going back to the title of, of our, our podcast and this emotional part for, for clients with all this uncertainty, what do you recommend given everything that you've just mentioned?
Matt Krutza:
I, you know, I think we all can relate that money can be emotional, so I think it's okay. I would tell clients it's okay to be emotional, just change the emotion, you know, remind clients of their goals and their values that they've kind of outlined in their financial plan and stick to the plan that they developed. So again, it's okay to feel a certain way and have emotion, but just making sure that you have a plan and, and kind of, again, control what you can control. I would say that would be the biggest thing. Brennan,
Brendan Freeman:
It's hard to do <laugh> as as we talk about, but important to remember. So if you had to leave our, our listeners today with one piece of advice that they should learn from this podcast, what would that be?
Matt Krutza:
You know, I think there's, there's a lot of things out there that you can't control. I mean, we've, we've covered, you know, there's certainly some, some big things that, that happen either annually or, you know, that I mentioned, the, the crisis, the pandemic, the war. There's a lot of things that we can't control that quite honestly are scares the heck out of everyone, including myself. But what can you control? I think it's, it's, it's a lot of concepts in life. The key to, to successful management and investing is control the things that you can control and make sure that the things that you can control, that you've tried to test those the best that you can. And I'll, and I'll give you one example, Brendan, if you watch the Olympics back in 2008, there's a, a famous swimmer, Michael Phelps, that we all probably remember, and he, he lined up for a hundred meter butterfly, and he got on those blocks.
And early on you could tell, you know, the announcers could tell that, that something was not right in true Michael Phelps fashion, right? He, he, he wins the race, he gets out, and you could, you could see him turn to his coach and his family, and you could tell something was wrong, kind of pointing to his goggles. And we found out sure enough, that that all, you know, his, his goggles had broke. And sure enough, he had still won the race. He came out with an autobiography. You know, a couple years later we found out that the key to the success that he had was that he didn't panic and that he had prepared for the unexpected, and that he had actually raced that race over a hundred times. He knew exactly how many strokes he needed to, to win that race. And so, although you kind of look and you're like, how in the heck did he win that? He planned for the unexpected? And although we can't, you know, plan for everything, there are ways that you can kind of plan, and test plan, test your plan compared to the unexpected. And so I, that's what I would say control. You can control, know that there's things that alter that we can't control, but just be prepared and just go in it with a clear mind and, and control. You
Brendan Freeman:
Can, what a great story. I love it. Excellent discussion today, Matt. Thank you. We covered many elements of a topic that I think a lot of our listeners can relate to. And certainly on the, in uncertain times, it's, it's definitely prevalent and emotions can really kick in for many of us. And so thank you for, for that discussion. Thanks for being our guest today, Matt. I also want to thank our audience for listening to this podcast today. Be sure to, to visit First Business, do Bank our website to check out other resources that we offer for business owners and for investors, and we invite you to experience the advantage at First Business Bank. If there's any way we can help, please reach out to us.
Speaker 1:
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