Ray’s Take In my 30 years of investment management, I’ve found there is always someone predicting another market downturn. Eventually they’ll be right. After all, historically, there’s been a bear market about every three years. Should you be concerned? Not overly, unless your decisions make a market downturn even more painful.
Downturns are simply a fact of life in investing. They’re part of the deal. Over time – and with the right mix of investments – they are overcome by the upswings. However, fear and greed can turn a bump in the road to wealth development into a mountain of loss.
Unfortunately, too many investors buy when stock prices are high and then sell in a panic when prices drop. They don’t plan it that way, but that’s the way it seems to work out. After avoiding the market, Main Street investors are now flooding back in just as prices are reaching multiyear highs. This is the usual pattern. Unfortunately, it’s also typical for these same investors to sell in a panic, and at a loss, when the market starts heading down. That’s the worst possible combination. Buying high and selling low is not the path to wealth.
If you aren’t following the guidance of an experienced and credentialed financial adviser, at least don’t react in fear when the inevitable market downturn occurs. That only makes things worse. Instead, stick with your plan: Hold a diversity of investments, including stocks, bonds, international, blue chips, etc. Research the companies or funds you invest in instead of following hot tips. Have enough money readily accessible for six months to a year of living expenses. And, stay calm.
Plan for the inevitable instead of being hurt by it.
Dana’s Take With daily and even hourly reports on financial markets, it’s easy to get caught up in the drama of the minute instead of focusing on long-term goals.
Sometimes the best thing an investor can do is simply close eyes and ears and go about business as usual. Not only could this be substantially better for one’s peace of mind, it might not be a bad thing for that portfolio, either.
It’s doubly hard to make smart investing decisions when emotional triggers, spurred along by television financial gurus, are pushing you to buy or sell. Investing is not an area where you should value your gut feelings over cold facts and thoughtful reasoning.
If you have a diversified investment portfolio that minimizes risk, but find you are still starting to fret over dire market predictions, it might be best to just tune out. A quick Internet search shows the same predictions are being made by someone every single year. Usually they’re wrong. Eventually they’re right. Either way, the less you let outside forces and your emotional responses influence your decisions, the better off you’ll be, mentally and probably financially, too.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at firstname.lastname@example.org.