3 Reasons to Tell Yourself It's Okay to Make Financial Mistakes in 2023
- Mistakes are good for your brain.
- Giving yourself permission to make mistakes can reduce anxiety.
- The history of the stock market is on your side.
It's tough to grow without making mistakes.
Most of us do everything within our power to avoid making a mistake. Whether it's forgetting to get a report turned in on time or calling a colleague by the wrong name, mistakes are embarrassing. And when it comes to financial mistakes, there's an added layer of angst. Not only do we kick ourselves because we got things wrong, but we worry about the financial fallout of our misstep.
If you're someone who feels frozen in fear because you want to avoid mistakes, now may be the time to look at mistakes from a slightly different angle. Here are three reasons it's okay to make financial mistakes as we move into 2023.
1. It's good for your brain
Psychologist Jason Moser found something interesting while studying what happens to the human brain when we make mistakes. Rather than shrivel up and die (like we sometimes believe we will), any time we make a mistake, synapses fire. A synapse is an electrical signal that darts from one part of the brain to another when learning occurs.
When you were a kid and learning how to ride a bike, synapses fired. When you learned about the War of 1812 or how to bake the perfect chocolate chip cookie, synapses fired. All that firing made your brain grow, and it continues to do so throughout your life.
You don't even have to go back and correct a mistake to benefit. In fact, you don't even have to be aware you've made a mistake. The mistake itself was enough to spark synapses.
When you think about it, it makes sense. Since the beginning of humanity, we've learned what to do -- and what not to do -- by messing up. When we were toddlers, falling taught us that we should not try to run before we learned to walk. As adults, mistakes teach us what to do the next time around to avoid making the same mistake.
Will investing mistakes happen? Probably. And that's okay. As long as you're investing for the long term, you can afford missteps and errors. In the meantime, those mistakes are exercising your brain in the best possible way.
2. Anxiety is the enemy
Let's face it; trying to avoid mistakes is anxiety-inducing.
From a nervous child during a spelling bee to a professional baseball ballplayer going through ritualistic superstitions while heading the batter's box, anxiety makes itself known in a variety of ways. And while anxiety is a normal part of the human experience, it can be incredibly harmful.
Prolonged anxiety is not only uncomfortable, but it's also bad for our health. Continued anxiety can trigger the body's central nervous system, sending the hormone cortisol into overdrive. In turn, this can lead to a boost in sugar levels and triglycerides. Then, like a snowball rolling downhill, more physical ailments follow, including short-term memory loss, digestive disorders, a lowered immune system, sleep disturbances, elevated blood pressure, and in rare cases, a heart attack.
If that weren't enough to convince us that we must find ways to relax, anxiety also interferes with our decision-making process and leads us to make bad decisions.
Like all decision-making, financial decisions are made in the prefrontal cortex of the brain (the front part). According to The Journal of Neuroscience, activity in the prefrontal cortex decreases when we're anxious. The last thing any of us want or need when we're trying to make a decision is for our brains to slow down.
For some, the slowdown in prefrontal cortex activity leads to indecision. For others, it leads to quick, rash decisions in an effort to avoid feeling anxious. It can also lead us to make the "safe" choice, which typically leads to low-risk, low-reward investing.
If you're too anxious to invest with confidence, take a deep breath. Once you've calmed down, take the time you need to learn everything you can about the investment under consideration. The more you learn, the more confident you're likely to feel.
Investing is never a sure thing and money can be lost, but due to inflation, storing your money away in a savings account or under your mattress is a sure way to lose out.
3. History has your back
As 2022 has illustrated, the stock market is like a Coney Island roller coaster with ups, downs, twists and turns -- and those ups and downs are scary. However, investing is about buying and holding over the long-term.
Over the past 100 years, the average yearly return for the S&P 500 has been about 10%. Some years, it's going to be less, but then, some years it's bound to be more. What history has shown us is that the people who feared mistakes so much that they withdrew from the market were the ones who lost out.
From running into a fire hydrant with your 1974 Volkswagen Beetle as you learn to drive a manual transmission to picking a loser or two in the stock market, mistakes are part of life. They're also a great tool for learning and refining our technique.
Step one is to give yourself permission to make mistakes.
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