People have a natural tendency to ignore uncomfortable truths and risks. They turn a blind eye to reduce their anxiety and feel safe. Rather than acknowledging the true facts and investment strategies that could shield families and livelihoods, people close their eyes or look away when they feel threatened. Turning a blind eye to the truth in your personal or professional life is called “willful blindness”.
Dawn Bennett is a student of investor psychology and has been working as a money manager for 30-some years. Over the course of her career, she has seen many investors turn a blind eye. They believe being blind protects them and makes them feel safer. However, Bennett says doing this is crippling their portfolios, leaving them vulnerable and powerless. When investors acknowledge and accept the truth surrounding their portfolio, they can accomplish real power and release their portfolio’s capability to grow. Dawn Bennett also suggests investors have a Plan B for their portfolios in order to be more defensive in our nation’s ramifications-free stock market.
Bennett points out that the S&P 500 continued to move up, and the VIX, a CBOE volatility index, moved up with it. This is also called the fear gauge, which closed below 11 for the first time since February of 2007. While this closing on the VIX should mean less fear, money managers see a VIX heading to single digits as a sign that trouble lies ahead. The VIX closed down below 11 on June 6, 2014, and has been below 14 for 30 straight days, the longest duration for the market’s fear gauge since November of 2013.
Bennett says this is the lull before the volatility storm. She advises investors to prepare for more volatility during the year because the Federal Reserve is sticking to its goal to reduce quantitative easing, monthly asset purchases, by another $10 billion. To stay ahead of volatility, investors should keep themselves up to date on the truth by looking through the front page news and examining the root of the issues.