How you react to news about the markets can help you go from a good investor to a great investor.
For millions, the pandemic has served as a source of financial distress and worry. This rings true, in particular, for investors of all kinds. Market volatility is back in the news and we feel that this is the perfect time to reach out to investors and provide a mental reset. If you avoid these three common mistakes that we see investors making you will be well on your way to becoming a great investor and you will be prepared for the media’s report of a market crash.
3 mistakes we see people making that keep them from becoming a great investor
- Investors are not keeping the appropriate amount of money in cash ~ We recommend you keep 6-9 months worth of expenses in your emergency fund; this cash allows you to experience less financial stress when facing market volatility and uncertainty.
- Investors are not prepared to take advantage of opportunities in the market ~ We work with our clients to keep a dollar amount that is equal to your emergency cash in a fund that is separate from their investments and is earmarked to take advantage of opportunities; most often negative market movements.
- Investors fail to realize that the media has a negative influence on their ability to build significant wealth ~ Once you realize that the media is going to fill the programming with as much negative news as possible so they can increase their ratings and sell more advertising; you will learn that they are the last place you should be taking financial advice from.
Living through COVID-19 is stressful enough. Feeling hopeless about an unpredictable stock market certainly isn’t any help. If you’re one of many worrying about their investments, these are some dependable ways to reduce stress and make a plan moving forward.
Focus On The Plan & Prioritize Your Mental Health
Psychological professionals have long acknowledged the detrimental effects of stress. It impacts sleep, cognition and overall physical health.1 In times of financial as well as social uncertainty, it’s important to first regulate your mental wellbeing; high stress levels actually change human perception, increasing the likelihood of impulsive decision-making.2 Due to this, it’s wise to consider certain stress-managing lifestyle changes before making any big investment-related decisions.
Reducing Stress Without Changing Your Finances
Stress makes us feel as if we’re losing control. This is why it’s vital to take control of your lifestyle, independent of finances, wherever you can. The following suggestions have been proven to have positive effects:3
- Focus on wellness. They’re timeworn suggestions, but they work: exercise regularly, get enough sleep, eat well and practice mindfulness. Allocate time to engage in recreational activities that make you happy, or explore a new hobby.
- Don’t use unhealthy coping mechanisms. These can be harder to recognize than one might expect. Don’t smoke or drink in excess to cope with stress, but also be wary of overworking yourself or unnecessary risk-taking.
- Stay socially connected. Social support increases resilience to stress.4 Experiencing the combined effects of financial stress and social distancing measures from coronavirus makes people susceptible to feelings of isolation. Lean into your support system and connect with others to avoid feeling consumed by anxious thoughts.
Approaching the Volatile Market
While all of the aforementioned actions can help you handle stress, it’s impossible to truly do so without addressing the stressor: the worry you have about your investments.
The first step is to accept what’s happening economically. The optimistic bull run of the past 11 years took a swift downturn, and we’re now in a period of inconsistency.5 That doesn’t mean investors have to live in a constant state of stock-induced anxiety, although it can be difficult not to. In how you approach the stock market, keep these guidelines in mind.
Take a Break
Over-checking your portfolio is ill-advised in general and even more so during market downturns. For most, investing is a long-term proposition. Constantly checking your investments is not only unnecessary but often a source of aggravated stress – the same goes for overconsuming news about the stock market. This can increase the chance of making hasty, emotionally-driven decisions. It may be in your best interest to momentarily step away from your investments in order to gain perspective.
Assess Your Investing Goals
While you should avoid over-checking it, seasons of volatility are a great time to reassess your portfolio and remind yourself of your long-term goals. Why is your portfolio made up of these specific investments? Why are you investing in the first place?
Despite a dynamic stock market, it’s probable that investors’ long-term goals remain unchanged. Keeping yourself conscious of these long-term returns is crucial; remember that your investment plans will outlast a period of market volatility.
Making Investment Decisions
If you have an advisor, talk to them about your concerns. If you don’t have an advisor and think it’s time to work with one, now’s an opportune time. No matter your circumstances, the fundamental piece of advice is to avoid making an uninformed decision. Patiently observing your losses isn’t easy – but note that as bear markets average losses of 33 percent, bull markets are much longer in duration and come with average gains of 159 percent.6
Remember that, historically, the stock market has recovered.7 Bear markets are a normal part of investing. It’s hard to see an upside as anxiety spreads amongst investors. It’s understandably stressful when you feel the security of your investments is threatened – but don’t allow a volatile market to cause you too much distress. Long-term returns will outweigh the short-term losses. Until then, focus on your mental wellbeing and solidify your financial plans.
Should you have any questions about your plan or just want to discuss the way you feel about the markets, feel free to schedule a meeting with us.