Four reasons why the rich are less prone to financial panic

It appears that “the rich” are less prone to financial panic. There are several reasons why this is true.

1. They don’t live hand-to-mouth so a decline in the value of their portfolio probably does not affect their lifestyle.

2. Research from the University of Michigan shows that there’s a correlation between selling stocks “at the wrong time” and having statistically lower income.

3. The rich are usually older and have experienced previous market declines and realize that after every decline there’s a rebound.

4. The rich have professional advice.

From the Wall Street Journal

But for some of the top 10%, success must come down to having professional financial advisors who help them resist their instincts to cut and run when securities markets hit the skids….

Imagine two well-off households, each with $100,000 in the stock market in 2007. A family that sold in 2009 after losing half its portfolio’s value may now have $50,000 in a savings account. A family that held on would now have about $130,000 in stocks. The inequality has yawned merely because of the investing decisions. In the long run, those savings accounts have a vanishingly small chance of outperforming stocks.

One of our jobs it to help our clients avoid making bad decisions during periods of market volatility. Join the top 10%.  Check us out at Korving & Company.

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