Don't Doomscroll the Dip: 3 Ways to Build a Calm, Confident Money Mindset | The ETF Experience Podcast

But today we'll be focusing on FOBI the fear of being in. And this occurs when you're invested, but fearful that the markets will crash and you're going to lose all of your investments or capital. Why is emotional discipline the single hardest thing about the investment game?

Trevor: I think it's a bunch of reasons, right? I mean, maybe what I would start by saying is, I get it. You know, it is one's life savings on the line after all. And so, it's a really, really simple or easy path to reacting emotionally to things that are happening in the market. We've seen studies published out there that say that our reaction to pain is about twice as strong as the reaction to pleasure.

So, if you kind of map that to the markets, we're twice as sensitive maybe to investment losses as we are to gains. And yet the market kind of doesn't know or care whether we're invested here or there sort of thing. Right. So, you can make a new investment in your portfolio. And if it if it goes up right after you've made the investment, unfortunately, a lot of investors, myself included, sometimes sort of validate the thesis. Oh, I was right. You know.

And yet you could make a very, very wise decision in the long run. And immediately after you've made that investment decision, it can go red. And then again, emotionally, it kind of sort of feels like, oh, you know, I've made an error in judgment or something like that. So, recency bias or overweighting what's happened recently, I guess as defined is a very, very big thing as well.

And maybe lastly, I'd say, look, investing isn't supposed to be fun. You know, it's kind of boring. We'll try to make it a little exciting here, right? But it's not supposed to be something that you get emotional satisfaction out of necessarily. And so, again, having that game plan going in is probably a pretty important thing to have.

Isabela: Yeah, it's definitely hard to distinguish like the emotional aspect of it, like get rid of that. So that it's not fun. It's just like black or white, what you're doing, and you understand your process and you're sticking to it.

Trevor: Yeah.

Isabela: So what is an ETF solution for FOBI?

Trevor: Yeah, I think maybe one thing that people can think about is narrow beta ETFs or narrow index ETFs. Sectors, subsectors, things like this. Right. And maybe I'll unpack that a little bit there. There is a difference between a good business and a good stock. You know?

And so, I think about, say, some of the companies involved in weight loss drugs these days, right? That idea is very, very popular right now or the artificial intelligence idea is very, very popular right now. But that doesn't automatically mean that all of the stocks or all of the businesses associated in that industry are going to go up. Right.

So, the tradition maybe is you sort of you put all your eggs in one basket and you go watch the basket or something like this. And with a sector ETF, you buy the basket in a way. You can buy all technology stocks, or you can buy a selection of health care, or you can buy the big six Canadian banks, for example, and not have to try to find the one that's going to do really well.

The other piece to doing this really is FOBI kind of like you might buy something, and it might go up, but something else in that category goes up more. That's kind of an unfortunate and emotional reaction as well sometimes. So maybe it's best to buy everything in the category.

Isabela: Yeah. So, then you don't have to worry about, like you said, one thing. One stock going up a lot more than the one that you chose and feeling upset about that. Yeah, absolutely.

Isabela: So, this actually will bring us to our second topic, the 24-hour rule. So, if you feel the urge to sell during a red market day, the rule says to wait 24 hours, and you can think about it like waiting 24 hours before buying something impulsively off of Amazon. That extra time really gives you additional hours to process the decision whether or not it's the right one for you. So how can the 24-hour rule be used when investing in ETFs or stocks.

Trevor: So you can automate things, for example, like first, let's say it's really good advice, right? Like Mom's advice to sleep on it. I think usually it is pretty wise. It's usually pretty sage, but that's life, you know, whether you choose to sign that lease, whether you choose to pick that university, whether you choose to accept the job offer, you know, like waiting and considering I think is often a good thing.

So, it's made your purchases for sure, but it's also large life decisions. And, you know, investing feels small sometimes, but what you do or do not do can sometimes be really impactful. So, waiting 24 hours makes sense. I think also automating some of your investment approach can make some sense too. So, think about setting a stop loss, for example, or target.

If this investment appreciates or goes up to that point, I'm going to automate a transaction to take profits, or if there's a loss that's unrealized to my portfolio, instead of letting a small loss become a large loss, I can set an order to automatically take care of that. One other one maybe is just rebalancing.

So, you know, it's very human to look at your portfolio. We all want to do well. I will say the more you look at a portfolio generally, the more volatile it feels. But rebalancing is one of those things where instead of looking at a portfolio and kind of deciding, okay, is now the time to rebalance? This has gone up a lot. This has gone up a little. This has gone down.

Investors might consider diarizing that or putting it in the calendar that every six months I'm going to look at my portfolio and rebalance if I need to do so as opposed to it being this, you know, random event from time to time.

Isabela: Is there an ideal time that you should wait before rebalancing?

Trevor: There's a lot of schools of thought on that. I think most investment professionals tend to rebalance portfolios once a year. There's a fair amount of investors who will rebalance once a half. So twice a year, every six months or so, you know, you can rebalance as often as you wished.

You could rebalance every single week or something like that. But the risk is that you sort of start to spin your wheels a little bit, right? You don't want to be selling A to buy more B only for the following week to be selling B to go back into A sort of thing. Right?

So, so often enough that you can take advantage of major market moves, but not so often that you're, you know, triggering taxes or paying extra commissions that you might otherwise not have to pay, that sort of thing.

Isabela: Exactly. Those additional points to look out for as well.

Trevor: Yeah.

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