In March, the actor Luke Perry passed away at the young age of 52 from a stroke. Shortly after his death, I read an article in Forbes describing how Perry was prompted to draft a will just a few years ago after a cancer scare. With a full slate of recent celebrity deaths that highlight poor estate planning (Tom Petty, Aretha Franklin, etc.), it was refreshing to think that this particular star had his affairs in order. Why were they in order? Because he had fear. When the risk of cancer was presented, Luke Perry had to think about mortality and the impact on his family if his wishes were not clear. We don’t know if absent that fear he would have taken the initiative to draft a will.
I would not recommend acting emotionally based on fear when managing your health and wealth, but it is such a strong motivator and can be used to make positive changes. Here are some positive and negative outcomes that emerge from deciding based on fear:
Good decisions driven by fear:
- Reviewing your estate plan. A brush with mortality or a bad family estate experience can cause us to schedule a meeting with the estate attorney that has been put off for too long. Consulting with an attorney can help pinpoint the risks unique to your family situation and also make sure your wishes are documented in the event medical decisions need to be made for you.
- Getting regular health screenings. Seeing a friend fight cancer can be a wake-up call to the health risks that come with aging. The fear of not being there for our families can help to overcome our reluctance to get to the doctor’s office on a regular basis.
- Finding the proper levels of insurance. Young families especially need to consider how to replace the earning potential of spouses and what the impact of passing at a young age would be on their financial plan. The fear of your family not having enough money to support financial goals may be an incentive to add or increase coverage. (Caveat to Follow)
Bad decisions driven by fear:
- Moving to cash when the stock market drops. It is natural to seek safety when the market is falling, but moving to cash is a sure way to lock in losses. Timing the market is impossible to do and trying to do so can cause performance to suffer
- Focusing on one particular risk. Call this recency bias or our tendency to “fight the last war.” If we focus too much on the things that just happened, we can be blinded to other risks that are possible in the future.
- Seeking too much safety. This is caveat to the insurance note above. It is possible to pay too much in premiums for too much insurance coverage because of a fear of dying young. Make sure you have a financial plan and know how much coverage you need and of what type before piling on policy after policy.
Our life experiences give us all different fears, but it can be constructive to take some of those fears and turn them into action. A financial advisor should help you step back, address what scares you in a positive way, and help to monitor the risks that could be on the horizon.