As you try to keep your wits about you in this crazy environment, here is a list of our “Top 10 Ways to Stay Sane in a Difficult Market.” When you are feeling anxious, try to remind yourself of the following:
- When things seem to be at their worst, recovery could be just around the corner. The best days in the investment markets are usually in very close proximity to the worst days.
- Investment markets trade in anticipation of what is coming. Even when the data points are terrible (deaths, defaults, company failures, etc.), the market can still move up. Investors will eventually look for a light at the end of the tunnel, and when they do, investments will move up.
- You do not lose unless you sell at a low. “Paper losses” are not real losses. All historical drops have been temporary. And if you hold on to your investments through the downturn, you can expect to eventually be positive again.
- Stock market declines are the only situation where people don’t get excited about a 30% or 50% off sale. If you think about it this way, then a stock market dip can almost always be viewed as an opportunity to buy more at lower prices.
- If you have a well-crafted cash flow plan that protects 10 years of needs, then you have less to worry about in a stock market decline. Stocks have produced positive returns in 95% of all historical 10-year time periods. In instances where losses did occur, they averaged less than -1.6%.
- Try not to look at your account value any more often during a decline than you do when you are on vacation. Keeping the near-term losses out of view can help quell feelings of panic. (If you have ever been nervous about your pulse rate being too high, were you able to bring it lower by listening to it? No.)
- Try not to internalize fear-driven headlines. While headlines may accurately reflect the public’s mood, this mood is seldom helpful to an investor.
- Successful investors do the things that are uncomfortable, things that the average person does not want to do. They buy when others are selling, and they sell when others are buying.
- Recognize that gut reactions are usually harmful rather than helpful. It is human nature to want to do something to protect ourselves, but it is important to realize that on average our emotional responses tend to be wrong.
- Diversified investments have never gone to zero. In times of market distress, it is easy to give into feelings that your portfolio may lose all of its value. Remember, though, that the market is comprised of many individual companies; while some may go out of business in a downturn, the whole market will not fail unless we as a society
decide to stop trading with one another. If you believe that people will continue doing business together, then it is a certainty that investments will recover, provided with adequate diversification and time.
Paracle Personal Financial Management is an independent financial planning firm founded in 2004 with an honest desire to help people optimize their finances by providing unbiased financial planning and investment advice that puts their clients first. Paracle specializes in delivering expert, comprehensive wealth management services to busy families. Their expertise integrates financial planning with investment management to ensure their clients experience confidence in every aspect of their plan so they can focus on what matters most. To learn more about Paracle, connect with them on LinkedIn.