Franklin Templeton Encourages Investors to “Take Stock” of How Emotions Interfere with Investment Decisions
|From:||Franklin Templeton Distributors, Inc.|
San Mateo, CA, September 18, 2012 — Even in the best of times, emotions can overtake the best laid investment plans. Behavioral economics sheds light on why the negative events seem to have an even more profound and lasting ability to derail investors’ longstanding, rational plans. The pullback of the stock market in 2008 left a lingering impression on investors. While the S&P 500 Index posted positive returns for each of the last three calendar years, many U.S. investors still worry about investing in stocks.1
“Many individual investors are still looking at equities through bear market glasses, so to speak,” said David McSpadden, senior vice president of Global Advisory Services. “The markets took investors on a roller coaster ride. Everyone remembers the dramatic drop. But, investors have paid less attention to the steady climb back up. They have sought traditionally ‘safe’ investments. Unfortunately, with interest rates at historic lows, many of those strategies offer marginal or negative real return, causing investors to fall short of their long-term goals.”
Franklin Templeton’s 2020 Vision: Time to Take Stock™ examines the human behaviors that impact investment decisions; important facts investors may be missing regarding more recent positive market developments around the world; and straightforward strategies to help investors reposition their portfolios with an appropriate allocation to equities and fixed income.
Time to Take Stock explores behavioral finance concepts as a window into why investors hold the beliefs and make the decisions they do:
- Availability Bias — Decision-making is greatly influenced by what is personally most relevant, recent or dramatic. For investors, this can mean that the unprecedented events of the 2008 financial crisis have left a stronger impression than the positive market returns in 2009, 2010 and 2011.1
- Loss Aversion — The pain of loss is generally much stronger than the reward felt from a gain. The desire to avoid market losses has driven many investors to move their money out of stocks into low-yielding cash equivalents such as U.S. money market instruments and Certificates of Deposit (CDs).
- Herding — An innate propensity to follow the crowd makes it easy for investors to get caught up in “what everyone else is doing.” This can cause investors to lose sight of their long-term goals and pull their money out of equities at the wrong time or sit on the sidelines while the market rises.
“We encourage investors to refocus on their long-term goals, and work with their financial advisors to take a critical look at how emotional concerns might unintentionally be influencing their investment decisions. It’s so important to objectively assess how portfolios need to be positioned to meet future goals,” added McSpadden.
Time to Take Stock is the latest in Franklin Templeton’s 2020 Vision series of thought leadership pieces that demonstrates why equities are a critical component for investors’ long-term success. Investors can find more information on 2020 Vision on franklintempleton.com or connect with Franklin Templeton on Facebook, LinkedIn or Twitter.
All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. It’s important to note that money market accounts and Certificates of Deposit (CDs) are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 and CDs offer a fixed rate of return. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial advisor, call us at (800) DIAL BEN/(800) 342-5236 or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money.
Franklin Templeton Distributors, Inc., a wholly-owned subsidiary of Franklin Resources, Inc., is the principal underwriter of Franklin Templeton’s U.S. registered funds. Franklin Resources, Inc. [NYSE:BEN] is a global investment management organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management solutions managed by its Franklin, Templeton, Mutual Series, Fiduciary Trust, Darby and Bissett investment teams. The San Mateo, CA–based company has more than 60 years of investment experience and $731 billion in assets under management as of August 31, 2012. For more information, please call 1-800/DIAL BEN® or visit franklintempleton.com.
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