Do you have authority over your thoughts? Today, James covers the number of thoughts available to you and why you tend to listen to and validate certain ones, particularly with our current economic outlook and the uncertainty surrounding it. How can you catch yourself in a negative thought or cycle, notice the thought, and flip it to something more positive?
A lot of Wealthquest advisors are having conversations with clients about how scared and concerned they are for the future. Maybe their portfolio has dropped and we’ve talked ad nauseam on this podcast about what James has coined the floor and ceiling problem, so check that out if you need a reminder.
These negative thoughts are rooted in a number that you look at and have decided that that number quantifies failure; it means you’re going to run out of money, but these thoughts are optional – not required. It does have an explanation though and that would be our negativity bias.
Negativity bias and loss aversion are deeply related. Negativity bias is the idea that your tendency is to focus on negative things. If you look at a negative outcome or see the market is down today, that market being down today hurts more. Some studies have shown that it takes 2x as much positive outcome to offset a negative outcome.
We overemphasize and amplify the impact of a negative event, and that is coupled with loss aversion – is more psychologically painful for you to lose than to gain.
Is a Recession Inevitable? Challenge Your Thoughts
The data points to a potential recession, that’s pretty obvious at this point. That also doesn’t mean everything’s going to implode. We do need the recession at some level to help cool off inflation, and that’s a good thing. In general, statistically speaking, we are in a very healthy place walking into a recession.
We get inundated with news, which is typically negative, feeding into that negativity bias. These thoughts that you’re having as you look at your portfolio balance, you’re picking that thought. You have authority over the thoughts that you’re thinking, but we don’t tend to exercise that authority. We take the thoughts that are given to us by the news and the things we see on our phones and we just adopt them as our own.
Pick the Better Thought
Recognize the authority that you have over the thoughts that you choose. This can apply to so many aspects of your life. Think of it like a waiter with a tray of options, and pick the one that actually leads to what you want. You don’t have to just take the one that you’re given. Pick something else.