Not a fan of the stock market now? Try these 4 strategies | personal financing
(Sam Swenson, CFA, CPA)
with the Standard & Poor’s 500 Fear and uncertainty are now back below the 4000 mark, and fear and uncertainty are back in the investor crowd. It’s hard to focus on a long-term investment plan when all you can see is red, but it’s also essential to stay calm when times get tough.
Let’s go through four strategies that can help keep your behavior in check when your wallet is in the trenches.
1. Don’t look too much
Frequently checking the value of your portfolio when the market is in free fall will not make you feel good. Updating your investment apps anxiously is more likely to encourage an emotional decision than a wise one. Try to check your numbers once in a while – every three months, if you can afford it.
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For the purists, completely deleting your investment apps can help eliminate the urge to constantly see how your stocks are performing. Research in behavioral finance has revealed that easier access leads to more trading; High emotions amplify this effect. Eliminating this access completely reduces the possibility of making an investment mistake, such as selling at or near the bottom.
2. Diversify your investments
Diversification is arguably more important now than it was in recent memory; High inflation, high interest rates, international conflict, and domestic political disagreements all contribute to this sentiment. Since there’s no way of knowing what’s around the corner (although many believe there is a high potential for stagnation), the need to diversify is simply critical.
What this means is ensuring that you have a predetermined asset allocation (a plan for how much to invest in each asset class) and rebalance periodically on a consistent schedule. It also means distributing your money widely enough to limit portfolio volatility; For most people, stocks, bonds, real estate and other physical assets will be part of the equation.
Falling asset prices are the current trend in most markets, but holding diversified assets will help keep your total net worth more constant than if you were to stick with one investment alone.
3. Control what you can control
You can’t control what happens next in the stock market, so it’s much better to focus your energy on the factors you do Can control. The biggest financial factor that you have at least some control over is your income. It’s never been easier to pick up a side job or temporary work, most of which can be done remotely; If you have an entrepreneurial spirit, it is worth exploring.
You also have great control over your investment schedule. Instead of trying to find the next bottom of the market, consider creating automatic deposits in your investment portfolio every week or two. This takes sentiment out of the equation and at least ensures that you are consistent with your investing behavior. What the market does in the short term is out of your reach.
4. Pay attention to the long-term
It’s easier said than done, but focusing on long-term portfolio results is essential when it comes to sound investing and financial planning. Short term volatility is nothing more than noise; Before selling all of your stocks, remember that investing in stocks has been one of the most reliable sources of wealth over the past century. The S&P 500, which withstands wars and economic disasters, has returned in the 8% to 10% range over the past 100 years (depending on how you handle earnings).
Furthermore, selling after the market has fallen doesn’t do much good. This is because it can be difficult to reach your long-term goals, you will have to renew your holding periods for tax purposes, and you will have resigned yourself to making emotional decisions about your investments. It is best to understand that market volatility is part of the investing game and that this will not be the last time we will see a volatile market.
Market anxiety is understandable
I can’t blame anyone for feeling uneasy about the stock market’s performance during the first eight months of the year. However, this is an opportunity to demonstrate smart investment behavior and allow the market to perform as it is, focusing on what you can control. This includes avoiding looking at your stocks every day, building your income, and focusing on the long term instead of tomorrow.
History has shown that investing in stocks is in the best interest of the patient. Be consistent with your investing behavior and you will be rewarded accordingly when the market reaches a new all-time high.
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