When my husband was first diagnosed with cancer I immediately read everything I could on the subject so we could put together a plan to fight it. The information I found was not encouraging.
Three out of ten Stage III melanoma patients do not live to five years, and forty percent of those who do have had a relapse of the disease. Interferon, the primary FDA approved treatment followed after surgery, boosts your survival chances by only 5 – 10%. I was overwhelmed.
I gave myself a break from all the reading, because I realized I was afraid, and this was only reinforcing my worst fears. Belief can alter our observations. Psychologists have identified this as human confirmation bias – a person with a particular belief will only see things as reinforcing their belief, even if another observer would disagree. I was afraid, so regardless of what I read my mind fixated on the information that confirmed my worst fears.
How is this relevant to you?
The last three years have not been kind to investors. You experienced the credit freeze in 2007, the plunge in the market in October 2008 followed by more drops in early 2009. This year we experienced a “flash crash” in May and 15% market correction over the summer. Some financial commentators have said that investors are suffering from a very real case of Post Traumatic Stress Disorder, and it will take years, not months, to get over it.
If you are already afraid of what is going to happen to your investments due to US government spending, continued unemployment, or any other negative economic scenario, it is likely you will only see information that reinforces your fear. You will stop being rational. You won’t notice your US real estate fund is up over 19% for the year-to-date, your US small company funds are up over 10%, or your overall investment holdings are up significantly since March of 2009. You filter out what doesn’t match your beliefs.
Too much information can be a bad thing sometimes. I could not see the fact that 7 out of 10 of Stage III melanoma patients are well after five years, and 60% of those patients have not had a relapse. Give yourself a break from all the “information” out there, and maybe you can approach your financial situation later with a much clearer, and less biased, view.
Jeannette A. Jones, CPA, CFP®