Did you know our human brains have the same limbic system that dominates a lizard’s brain activity? Luckily, we also have other lobes that provide higher-level functions. The limbic system is the source of impulses like fight, flight, feeding, fear, freezing up, and falling in love. Certainly, it’s good to have these reactions when we need them, but our “lizard brains” aren’t well-suited for activities like retirement planning and understanding fluctuations in ESOP stock value.
In our work with ESOP company leaders and employee-owner communication teams, we help them educate employee-owners about how the ESOP fits into their retirement planning. Our training also helps put ESOP stock value in context when there are fluctuations or dramatic shifts in the public markets, which can open the floodgates for reactionary impulses. Part of that context is each person’s own tendencies to react to short-term changes in their retirement. We don’t want to be thinking like an impulsive lizard when building long-term wealth in our ESOP.
When making decisions about continuing (or getting started with) your personal savings in an IRA or a 401(k) or choices related to ESOP diversification, you want to fully engage your cerebral cortex, the part of your brain that does higher-level planning and makes sense of emotions before reacting. Our brains can misinterpret feelings and inadvertently think ourselves into actions that aren’t always in our long-term interest.
Professional financial advisors focus on the following themes to keep our unhelpful primitive instincts in check.
Operate from a long-term strategy
When changes in ESOP value or the stock market happen (up or down), it can trigger emotions that motivate us to act. Employee-owners need to be reminded that actions taken on retirement savings are related to your long-term strategy which means you want to steer clear of operating from your reactionary, short-term-focused brain. For example, even if your ESOP account shoots up in value, do not let this derail on your own savings plan and remember the ESOP is a complement to your other retirement savings.
Timing the market is generally unsuccessful
Our brains might tell us that we could reap rewards if we just invest at the bottom of the market or sell at the top of the market. Study after study shows that our instincts probably will not serve us well. As a recent brief from the Center for Retirement Research at Boston College puts it, “[W]hen investors react, they generally make the wrong decision.”
Know yourself and your feelings about money
Everyone has their own life experience with money, security and investing. If you’re more aware of your own feelings about money and investing, you’ll be better equipped to seek the right advice from a professional. You’ll also make better sense of the messages you’re getting from your primitive limbic “lizard brain.”
Fitting an ESOP into your personal retirement plan requires both knowledge about your ESOP and a roadmap for exploring your personal retirement needs. Contact Cathy Ivancic at 330-896-7285 ext.101 or at firstname.lastname@example.org for information on WDI’s educational workshops and communication tools to build knowledge of ESOPs in retirement and the drivers of long-term value.