Wise Bread Picks
The last few weeks have felt like a horror movie for my investments. Each time I check my portfolio, it’s as if I’m peeking through my fingers, bracing for the worst. Financial headlines are rife with alarming predictions: potential recessions, trade wars, and market corrections. It’s enough to make anyone want to stash their money under the mattress.
However, I know that pulling my money out during a downturn is the worst possible move. The only way to ensure that temporary losses become permanent is to sell. Staying the course is easier said than done, especially when fear looms large. Here are some strategies to help you maintain your composure during turbulent times.
Remember that it’s okay to hide
While hiding from reality often gets criticized, sometimes it’s the best approach. This is due to a cognitive bias that compels us to act out of fear. We feel that any action, even if counterproductive, is better than doing nothing. This mindset often leads to selling at market lows and buying at highs, driven by the fear of inaction.
To combat this urge, consider ignoring your portfolio for a while. This doesn’t mean you should never check your investments, but obsessively monitoring financial news can lead to fear-based decisions. Instead, set a regular schedule to review your investments—monthly or quarterly—to keep your asset allocation balanced without succumbing to panic.
By doing this, you’ll have the information you need to make informed decisions without falling prey to emotional impulses. (See also: 5 Ways to Invest Like a Pro — No Financial Adviser Required)
Take comfort in history
While the phrase “past performance is no guarantee of future results” is ubiquitous in finance, examining historical market trends can provide reassurance. Over time, markets have shown a tendency to recover and trend upward.
Understanding that markets will eventually bounce back doesn’t make the current volatility easier, but it helps put temporary losses into perspective. Investors who remained calm during the downturns of 2000 and 2008 saw their portfolios recover. Trusting in a solid investment strategy and historical trends can bolster your confidence during challenging times. (See also: How to Prepare Your Money for the Coming Economic Slowdown)
Make a volatility plan
Market fluctuations are a natural part of investing, yet many expect only upward trends. This unrealistic expectation can make even minor dips feel overwhelming. To counteract this, create a plan for how you’ll respond during downturns.
Your volatility plan could be as simple as committing to check your portfolio less frequently during market declines. Knowing in advance that you’ll reduce your monitoring can help you stick to your strategy. Alternatively, you might decide to take advantage of downturns by purchasing more investments instead of fearing them. (See also: 7 Easy Ways to Build an Emergency Fund From $0)
Don’t panic
Humans are not naturally rational investors, and emotions can easily cloud judgment. Selling investments due to market volatility is a permanent solution to a temporary problem. Think through your responses to market changes before they occur, so you have a plan to rely on when fear strikes.
