This is scary when the stock market is volatile. It’s even more terrifying when you consider how much you’ve invested in your future! Over the past year, the financial and economic world seems to be on the verge of doing something very bad. There are fears of a recession on the horizon. Instability remains. All in all, I haven’t changed what I’ve done. I followed my plan. I’m not Stoke. I’m not an instrument. But I’ve learned how to ignore what my lizard brain is screaming at me to do. Today I will share some of my strategies with you. Here are the mental strategies I use to avoid panic decisions and stay on course:
Track your net worth
When you track your net worth, it keeps perspective volatility. I have been tracking my net assets since 200. Stock investment is one of the biggest components of my net worth. I had investments in the stock market during the housing bubble and the global financial crisis of the 200s. It was a scary time. I was contributing to 401 (k) and investing in a taxable brokerage account, so the news was more than just a story. They were reflected in my account statement. But with my record, I can maintain a long-term outlook by looking back at history. Whenever I feel panicked I look at my spreadsheet. It reminds me that I have a plan and I should stick to it. When I think of volatility at the end of 2018, I don’t panic because I’ve invested most of my time before that. It’s been a function of investing for many years – my recent investments make up a small percentage of the total. I’ve been investing for 15 years, and I’ve built a shaft of unrealistic profits. That cage helps me sleep at night.
Put your money in the “time capsule”
I think of my investment as a time capsule. When I contribute to the IRA, I don’t expect to touch that money until retirement is near. It’s figuratively locked in a glass case that I can’t open. (Plus, if I used that money early, I would probably have to pay taxes and fees.) I could adjust those investments, but I wouldn’t raise any money for decades. I know I won’t spend that money which means I can invest it in the stock market with confidence and take advantage of its volatility. It can be scary to cut prices in the near term if you need money. It’s less frightening if you tell yourself that it has decades to recover. And remember, in the stock market, a lot can happen in 5-10 years. During the global financial crisis of 200 global, the stock market fell by 50% and then recovered all its losses within 5 years! The S&P 500 index was close to 1,500 in the fall of 2007. During the crisis, it dropped to about 675 in March 2009. In early 2013 it returned to 1,500.
In an emergency
If your investment is in a time capsule with decorative locks, you need to set up a system that will not tempt you to access them. For that, I rely on a healthy emergency fund separate from my investment – the money I set aside to help weather the economic downturn. The amount of cash is based on personal needs, not what the market is doing. If market volatility increases and I become anxious, I consider this money to be my insurance policy. With this emergency fund, I will not be forced to sell other shares. I can wait for the recession. I have a security fence.
Keep long memories
I started investing in 1998. I was studying computer science at Carnegie Mellon University, and I thought I understood the internet! Then what I did was most college kids who thought they knew everything – I started making decisions based on this irrational confidence. And I paid a high price to learn about the Dunning-Kruger effect! During the dot-com bubble and the next explosion, I tried to catch a large part of my chariot IRA lost knife, many of which are no longer there (does JDS Unifage ring a bell for anyone?).
Stop eating financial news
If you are constantly receiving financial news, it is difficult to disconnect and avoid panicking when the situation is getting worse. When you see red numbers everywhere and warnings from scholars that we may enter the next recession, you may be tempted to take action. You want to do something because of your sympathetic nervous system’s well-trained fight-or-flight instincts, which kept our ancestors alive. When you are in the woods and you hear the bushes moving unexpectedly, your brain tells you to do something or you can eat. Financial news is the shaking of bushes, the shaking of ferocious animals. Without this new world, it is not. Whatever the bush bush risk.
Sometimes you need to talk to someone to calm your nerves. I feel that the simple act of putting words into feeling often helps me realize that I can be panicked. Talking to someone else forces me to work with my reasoning. I want to be able to justify my decisions. It’s worth talking to someone, even if it’s just a sanity check. I hope you find value in my strategies for staying calm in volatile times and that you can integrate something into your investment approach.
All investments are at risk, including the potential loss of money you invest.
Past performance is not a guarantee of future results.
Jim Wang’s opinion is not like Vanguard’s. Mr. Wang is a professional money writer and blogger, not a registered consultant, and has been compensated for creating this blog.
“I learned how to stop worrying and like market volatility”,