As Herodotus writes, during the Greek victory over the Persians at Plataea, one man especially distinguished himself in battle. A story is told of Sophanes, who carried a steel anchor hung from his belt by a bronze chain. When the enemy came into fighting distance he would cast out the anchor, both to steady himself against the onrushing fighters and so that they could not move him from his chosen ground.
We are all anchored in some way or another, mostly without even realising it. I expect many Financial Independence enthusiasts were mentally anchored by the comfort of regular returns from equity markets market and seeing their plans come neatly together every month. From time to time I included myself in this group.
This is human nature of course, but now you need to be careful where you cast your anchor as these are treacherous and uncertain seas. Now the world is reeling from the sell-off and I suspect many in the Financial Independence space have registered huge losses on paper.
In neuro-linguistic programming, anchoring is a term for where a response becomes associated to a stimulus, and that the perception of the stimulus leads to the anchor response. An example of a positive anchor is the warm reaction you get when you see a baby’s smile. A negative anchor evokes negative feelings, such as fear or or panic from watching the news or reading Twitter.
Like myself, I imagine most people striving for Financial Independence stumbled on it by accident, then realised it was possible even on a modest salary. We followed everything out of the JL Collins playbook, setting up automatic regular investing for the long run, to serve as a response to all socio-economic swings. This was a good anchor.
With the best will in the world, the experts in this space warned that many of us haven’t seen a significant market crash and it should be expected as part of the healthy free market economy. In these times all we need to do is keep contributing, and think about the long term benefits of doing so. But that crash is here, and it’s potentially devastating implications and instigation of a flight response can lead to a state of cognitive dissonance.
In these times your priority should of course be survival; forget internet commentators and talk of anchors at this point. Take steps to ensure the survival of yourself, survival of your business or your job and do everything it takes to protect yourself. Help also others who might need it in this time.
If you are not in survival mode and still consider yourself on the path to FI, remember your good anchors and why you subscribed to this idea in the first place. This will pass of course, in one way or another. For most people a prudent strategy is what got them to this point. Don’t abandon it now.
In reaction to the COVID-19 epidemic, both the UK Government and the media have labelled this a war. In economic terms it may well be. But we don’t know, so accept this fact, throw out your anchor like Sophanes, face the enemy and hold your ground.