Normalcy Bias, by definition, is a tendency for people to believe that things will function in the future the way they normally have functioned in the past and therefore to underestimate both the likelihood of a disaster and its possible effects.

With the start of the Covid-19 Crisis, we watched the market plummet 30% in a period of 40 days. After any big market correction you will hear people say “things will bounce back”, “they will return to normal”, and “don’t sell or you’ll miss the rebound”. SAYS WHO???

I think you need a history lesson. The Japanese Nikkei is a stock market index for the Tokyo stock exchange. It hit its all-time high of 38,957 on 12/29/1989. It then lost 81.9% of its value over the next 20 years and hit bottom on 3/10/2009 at 7,054. IT NEVER CAME BACK! Today it sits at 18,092 as of this writing.

I guarantee brokers, advisors, and well-intentioned friends kept telling everyone, “Buy & Hold”. I’m sure there were people who when the market was down 30% said “only a fool would lock in his losses. Sell now and you’ll miss the big bounce back.”

Markets are trading up and down 2,000-3,000 points in a single day right now. That has NEVER happened before. EVER. We are in new territory. To say something based on our past makes us victims of Normalcy Bias. We just assume since things have ALWAYS operated a certain way, that they always will. This is not necessarily true. I am not an alarmist or telling you the markets WON’T have a rebound.  This is just to give a lesson in history and the danger of believing that things CAN’T change.  When will they rebound?  What if they don’t rebound for several years?  Do you have a plan in place to protect your wealth from taking these dips?  One of the keys to a solid Financial Strategy is to first make sure you haven’t made assumptions based on Normalcy Bias.