Animal spirits are a term used by market experts to describe the collective mood and behavior of investors.

• Following Election Day, the markets surged, leading some experts to believe "animal spirits" have returned.
• The market fervor following the election had begun to decrease to its pre-election state by Monday.

Following the Nov. 5 presidential election, which saw President-elect Donald Trump secure a decisive victory, the markets experienced a surge in growth.

The S&P 500 and Dow Jones Industrial Average reached new highs due to a "Trump trade," with certain sectors expected to benefit from the president-elect's second term.

The market fervor following the election had begun to decrease to its pre-election state by Monday.

Some experts claim to observe a resurgence of animal spirits, according to certain reports.

Keynes first used the term "animal spirits" to describe how human emotions influence investment gains and losses.

While some experts believe animal spirits indicate consumer confidence, investors may face problems if they engage in "excessive risk," according to Brad Klontz, a psychologist and financial planner.

"Dead investors outperform living investors because they are not influenced by their animal spirits, according to Klontz," he explained.

Studies have demonstrated that portfolios of deceased investors often outperform, as they are not subject to emotional impulses like panic selling or buying.

Investors may be excited or fearful

According to Scott Wren, senior global market strategist at Wells Fargo, the recent market runup was not significantly driven by individual investors chasing the market. Additionally, individuals, who were divided in their election choices, are also divided in their investment outlook, he stated.

Your candidate's identity may determine whether you are excited or fearful about the future, according to Wren.

The markets have been driven higher by professional traders and money managers who couldn't remain idle during the S&P 500 index's rapid rise, according to him.

While there is big-picture excitement for 2025, including lower taxes, less regulation, and reasonable levels of inflation, Wren predicts that the U.S. economy may experience a couple of quarters of slower growth.

"Wren stated that a recession is unlikely to occur."

'Nobody is immune' to investing missteps

It is advisable for investors to sell stocks when their prices are high and purchase when they are low.

But research consistently finds the opposite tends to happen.

According to Klontz, humans tend to adopt a herd mentality and make decisions based on the crowd's guidance, influencing our choices in areas such as voting and investing.

Recognize that nobody is immune to this, Klontz stated.

It is the ideal moment for investors to ensure their asset allocation aligns with their individual risk tolerance and financial objectives, according to him.

When the market crashes, it becomes more difficult, Klontz stated.

Financial advisors, like all humans, are also susceptible to biases. Therefore, investors should ask questions such as "What would you do as my advisor if the market went down 50%?" advised Klontz.

To avoid making big mistakes, good advisors should have systems in place, such as an investment committee or a predetermined approach, Klontz said.

Investors should also consider whether they are comfortable with their portfolio dropping by 40% if the market experiences a 40% decline, as advised by Klontz.

If the answer is no, then you should avoid investing all in stocks, Klontz advised.

If you are young, a significant market decline could be a valuable chance to dollar cost average and strategically invest a set amount of money at regular intervals, ultimately maximizing your profits when the market rebounds.

Advisors can assist people who struggle with doing that, as long as they understand behavioral patterns, Klontz stated.