These investors are making a terrible mistake right now... Don't be one of them by Dr. David Eifrig
If Treasury bonds are such a terrible deal... why would so many investors load up on them?
The simple answer is fear and how our bodies' natural reaction to stress can be fatal to our investments.
One of the hardest parts about investing is realizing how powerful your brain is... and how our primal impulses work against our best interests and limit what's possible.
Recent neurological research shows we are exceptional at fooling ourselves. In a study of cyclists, bikers rode a time trial in a controlled environment. One group rode in a room kept at 71 degrees Fahrenheit; the other in 89 degrees. As expected, the group at the hotter temperature was 4% slower.
But when the scientists altered the thermometer (but not the actual temperature) to read "71" in the "hot" 89-degree room, the times were identical to the "cool" room. It's striking how powerful the mind is at undermining us... even with something as basic as physical exercise.
When it comes to investing... we're hard-wired to follow the herd when fear strikes. Stress and anxiety set off chemical reactions in your brain (specifically in the walnut-shaped tissue called the amygdala) that spark an instinctive need to rejoin the crowd... When primitive man faced predators in the wild, this "safety in numbers" impulse could save his life.
But following the herd is fatal to your investment returns. It leads you to buy at the top and sell at the bottom. You go broke following your impulse.
Today, fear is kicking in... The American Association of Individual Investors recently reported only 28% of people were bullish on stocks. (The 20-year average is 40%.) Another 42% were bearish. (The average bearishness is 30.5%.)
Naturally, this anxiety over stocks is driving the herd to terrible investment choices... People see others rushing to the perceived safety of U.S. Treasurys and are following along heedless of the consequences.
Source: Retirement Millionaire