Historically, investing in stocks has benefited investors with compounding growth over time, helping investors prepare for financial goals and outpace inflation. Unfortunately, investors are human and make mistakes at times, when volatility picks up and fear sets into the equation. To be a successful investor, first you must have a strategy and financial plan tied to your timeline. With a plan, investors have a process and are better able to track their goals and determine how much risk may be needed to grow his or her nest egg.
In the last decade, interest rates have been at historically low levels. Even with low rates, inflation puts pressure on people, including seniors with shorter time horizons. This pressure often leads investors into riskier investments, in order to keep up with rising costs and prevent the spend down of principal.
The key is, how will these investors react, when volatility sets in!
Exposure to riskier assets can generate fear when uncertainties rise. Panic selling occurs when people see valuations drop and they hit their breaking point. Fear and abrupt selling often occurs with headline news. Media outlets know that drama gets people to tune in! Fear mongers also like to spread their pessimistic views, as maybe they stand to benefit when markets drop.
• Understand that you can not control the market, but you can control your plan and your diversification to reduce and hedge risk.
• Keep your composure and a longer-term view. When you see traders selling low on headline news and repurchasing higher on fear of missing out, have the discipline to stay out of that loser’s game.
• Keep enough cash reserve on hand, so you will not have to sell stocks during times of lower valuations
• Remember, markets have historically had more positive years than negative years. You are looking for a positive rate of return over time, even though you may have years where your valuation decreases.
• If possible reinvest dividends and understand that during times of lower valuations, you are adding shares at lower prices.
• Invest on a regular basis and consider dollar cost averaging (purchasing on a set schedule) to reduce your investment risk and to help you reach your wealth accumulation goals.
• Work with an experienced and trusted financial advisor to create a plan, as this will help you stay the course, when others seem to aimlessly react to news.
• Keep in regular contact with your financial advisor to discuss any concerns and update your plan according to any life events that my affect your plan in the long-term or short-term.
• Don’t get caught up watching the market all day.
• Don’t follow the herd, panic, and make drastic changes that may be an overreaction to the moment.
• Don’t sell low and move money into overpriced assets and offer little upside potential and low yield.
• Don’t let fear cloud your decision making, as the reality of any situation is usually not as bad as it seems.
• Don’t try to time or outguess the market and make decisions on events that may or may not take place in the future.
Feel free to contact us to see how we can be your personal CFO and we can build a life map that is easy to read and follow.