How to Stop Anxiety From Sabotaging Your Investments
The world is on the verge of a geopolitical paradigm shift , but is still reeling from a global pandemic. Traditional markets are getting restless , and new ones seem to be in free fall already. These are, as they say, interesting times.
“How will this affect my 401(k) form?” may seem like a rude or stupid question, but if you’re a small, regular investor like me, anxiety is the right answer: I don’t want to go hungry during my retirement. So I’ve scoured the internet for some tips on how to deal with the frenzied fear of investing in interesting times, and I’ve brought the following to share with you.
Come on, panic (but don’t do anything about it)
People say don’t panic all the time, but that’s useless, often condescending advice. So go ahead, panic. Feel your feelings. This is a scary, unsettling time, and minimizing your reactions is unnatural and inappropriate.
But don’t ” panic about panic,” as Dr. Brad Klontz, associate professor of financial psychology and behavioral finance at the Hyder College of Business at Creighton University, put it. Don’t make financial moves based on your feelings (other than buying a couple of ice cream cones).
Consider the bigger and longer-term picture
If you invest “correctly”, you are looking at the long term. The many fast-paced situations that threaten to spiral out of control make it difficult to see the bigger picture, but these are the situations where it matters most.
Remember, this is not the first time this has happened. And it won’t be the last time. But through world wars, depressions, recessions, and social upheavals, the market has always bounced back from downturns. Stocks have averaged about 11 percent a year since 1926 . There has never been a 15-year period where stocks have lost money. If you only invested in stocks on the four worst investment days of the last 50 years—I’m talking about the peak before every crash—you’d still be way ahead. Provided you kept your head and didn’t panic selling.
Ignore everything
Now is not the time to check how your 401(k) form is doing. Everything is fine. Now is not the time to stick yourself to news sources or spin doom. It’s okay to ignore all of this.
As Greg Davies, Head of Behavioral Finance at Oxford Risk , put it: “Avoid watching the markets on a daily basis, as it will only increase your anxiety, but it will not do you any good… There will inevitably be dramatic moves that are completely unpredictable. Given that you cannot control or predict them, you should also strive not to worry about them and exclude them from your long-term decisions.”
Plan for change in the future
This tip from Marketwatch is great advice if you can’t help stressing out about your investments: write down how much you “lose” each day (whether you actually lose anything depends on your definition of the word; more on that see below) and ask yourself if your current strategy is too risky for your emotional health and/or your long-term goals. This will give you some active activity and information for the future. When the markets stabilize, take the loss reports to your investment firm’s advisor and discuss whether you should change your risk level before the next inevitable downturn.
Do not mourn “paper losses”
After all, what is money , dude? When it comes to your retirement investments, these dollar signs represent stocks, bonds, and other financial instruments that you own, so you only really make or lose money when you sell or buy something.
“The undervaluation of these assets doesn’t matter, only value matters when you need to bring years into the future,” says Davis . “It’s much better to sit and wait than to get out when the markets are down.”
Don’t try to “buy the dip” (but don’t stop investing either)
“Buying dips” is the idea that you should buy investments after a crash because they are, in effect, “sold at a discount.” It seems like it makes a lot of sense, but it’s actually not a very good strategy.
“Buying dips is one of those things that works really well on paper but doesn’t work well in real life,” explains Callie Cox, senior investment strategist at Ally Invest . The problem with dip buying is twofold: first, trying to time your investment in this way results in a shortage of money in the markets during “no dip” periods. Secondly, you have no idea how low things will go and you may end up catching a falling knife . Instead, invest on a regular schedule with an eye on long-term returns. Calm down, as they say, and continue.
Talk to a specialist (or two)
To deal with the anxiety caused by financial insecurity (or the fear of it), you should seek the help of a mental health professional for “anxiety” and a financial advisor for the “financial” part. These are difficult times and we all need a little comfort.