When markets soar, investors face a subtle but dangerous temptation: trading wisdom for excitement.

With headlines touting record highs and optimism running wild, it’s easy to get swept up in the momentum. But is now the time to double down—or to take a step back and exercise caution? Today, Mark Biller joins us to unpack the dangers of investing with emotion instead of wisdom.

Mark Biller is Executive Editor and Senior Portfolio Manager at Sound Mind Investing, an underwriter of Faith & Finance.

Bull Market Optimism: Proceed with Caution

The stock market has staged a remarkable comeback since spring, and many investors are feeling hopeful about the year ahead. But while optimism is natural, there’s a fine line between healthy confidence and dangerous overconfidence.

Just a few months ago, fear dominated the market. Now, investor sentiment has swung in the opposite direction—toward excessive optimism. History shows us that both extremes can lead to poor decision-making. Just as fear prompts panic-selling in downturns, overconfidence during bull markets can drive people to take unnecessary risks.

The late 1990s provide a clear example. The dot-com bubble fueled euphoric investing in internet companies, but when the bubble burst, enormous wealth evaporated. While the internet did transform the world, many early investors paid a steep price for ignoring caution.

The Risk of Projecting the Present

Optimism in the long term is typically rewarded—stocks have trended upward for more than a century despite wars, recessions, and downturns. But short-term overconfidence is dangerous. Since October 2023, the stock market has gained about 60%—roughly six years of typical returns compressed into less than two. It’s unrealistic to assume such momentum will continue indefinitely.

In environments like this, investors often fall into two traps:

Doubling down on every dip. Rather than seeing pullbacks as a chance to pause, many rush to “buy the dip” without considering long-term goals.
Abandoning diversification. When some holdings lag behind, it’s tempting to dump them in favor of high-flyers like gold or crypto. This shortsightedness often backfires.

Diversification: A Biblical Principle

King Solomon offered timeless wisdom in Ecclesiastes 11:2: “Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” Diversification is, at its core, an act of humility. Since no one knows the future, spreading investments across asset classes is the most reliable defense against both downturns and emotional decision-making.

While diversification may feel “boring” during bull markets, it provides stability that helps investors stay committed to their plan when volatility inevitably returns.

A strong investment strategy accounts for risk tolerance, life stage, and long-term goals. For a younger investor, this might mean a higher allocation to stocks, consistent 401(k) contributions, and the discipline to stay invested through ups and downs. For others, it may involve gradual adjustments, such as including gold or bonds. The key is making changes based on thoughtful, long-term reasoning—not fear of missing out.

Confidence vs. Overconfidence

Healthy confidence comes from setting reasonable goals, understanding fundamentals, and staying the course. Overconfidence, on the other hand, assumes you can predict what’s coming next—a trap no investor avoids for long.

Optimism has its place, but unchecked euphoria can cloud judgment. By remembering history, practicing diversification, and committing to a steady long-term plan, investors can avoid the pitfalls of emotional decision-making and pursue lasting financial fruitfulness.

If you’d like to learn more about becoming a Sound Mind Investing (SMI) member, you can visit them at SoundMindInvesting.org.

On Today’s Program, Rob Answers Listener Questions:

I’m 72, still running my business, and I have both an IRA and a Roth that I’ve never touched. What’s the most tax-efficient way to start taking money out while minimizing what goes to the government?
I need to withdraw from two retirement accounts with about $9,000 each. They’re planning to withhold 20% plus fees—around $2,200 per account. Is that normal, and what are my options since I need the cash quickly?

Resources Mentioned:

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