Markets and Your Emotions
Keeping Your Emotions in Check as Markets Change
As a financial advisor, I understand that market fluctuations can be stressful and even frightening. It’s natural to feel concerned when you see the value of your investments or even the world change rapidly. Think of everything we have been through over the past five years! However, emotional reactions to market changes can lead to poor financial decisions. At the end of the day, markets are going to do what they do. If I knew what was going to happen tomorrow or even next week, I would be at the beach soaking up the sun! In my opinion, it is more important to focus on the things we can control - our emotions being the biggest hurdle most of us have to overcome. Here are some strategies to help you keep your emotions in check and make sound choices, even during the worst of times.
1. Understand Market Cycles
The stock market goes through cycles of highs and lows. Historically, markets have always rebounded over time despite temporary downturns. Understanding that these cycles are normal can help you stay calm during periods of volatility. Remember, investing is a long-term game, and short-term fluctuations are just part of the journey. This is especially hard for newer investors compared to seasoned veterans who have been in the market for decades.
2. Focus on Your Financial Plan
Your financial plan is designed to withstand market volatility. It’s based on your long-term goals, risk tolerance, and investment horizon. When the market is volatile, revisit the good decisions we are making today, regardless of short-term market movements. Sticking to your plan can help you avoid making impulsive decisions. The more good decisions you make today, the more they will compound to produce a better outcome in the long term. If you are not doing any sort of planning or working with a professional, I would highly encourage you to reach out to one.
3. Avoid Checking Your Portfolio Too Often
Constantly checking your investment portfolio can increase anxiety and lead to emotional decision-making. Instead, set regular intervals to review your investments, such as quarterly or semiannually. This approach helps you stay informed without getting caught up in the daily market noise. I have some clients who don’t log in at all and see the changes during our semi-annual or annual reviews. I often find that these clients are more successful in the long term, too!
4. Stay Informed, But Don't Overreact
Staying informed about market trends and economic news is important, but it’s equally important not to overreact to every headline. The media often focuses on dramatic stories that can amplify fear and uncertainty. Almost all media today is designed for clicks and eyeballs on the content. Take a step back and consider the broader context before making any decisions. This holds true for me as well, as we are inundated with statistics and information from various sources daily.
5. Practice Patience and Discipline
Patience and discipline are key to successful investing. Avoid making hasty decisions based on emotions. Instead, trust the process and stay committed to your investment strategy and plan. If you’re feeling anxious, take a moment to breathe and remind yourself of the long-term nature of your investments.
6. Diversify Your Investments
Diversification helps spread risk across different asset classes, reducing the impact of market volatility on your overall portfolio. By having a mix of stocks, bonds, and other investments, you can mitigate the effects of market downturns. Diversification is a fundamental principle of investing that can provide peace of mind during uncertain times.
7. Consider the Bigger Picture
Market downturns can create opportunities for savvy investors. While it may be difficult to see the silver lining during a market dip, remember that lower prices can provide buying opportunities. Maintaining a long-term perspective can help you capitalize on market conditions rather than being paralyzed by fear. This is where the implementation of dollar cost averaging is so successful.
8. Consult with Your Financial Advisor
When in doubt, reach out! We are here to provide guidance, answer your questions, and help you stay focused on your financial goals. Regular communication can help you navigate market changes with confidence and clarity.
Emotions are a natural part of investing, but they shouldn’t dictate your financial decisions. By understanding market cycles, focusing on your financial plan, avoiding constant portfolio checks, staying informed without overreacting, practicing patience and discipline, diversifying your investments, and considering the bigger picture, you can keep your emotions in check and make sound choices. Any one of my clients knows that this is a heavily discussed topic, and we prepare for volatility by building a strong foundation that can withstand the noise.
Written by: Kyle Cooper
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.