Most of us know that one of the most important things we can do to build wealth over the long term is to invest our money. However, the idea of investing, for many, is scary right now. Most of us remember the financial crisis of 2008, and how entire retirement accounts were wiped out. Many people consequently had to put off retirement because of the crash, and that’s if they are lucky to still have a job.
While stock market valuations are much higher now, some people are still concerned about what could be coming next. The economy hasn’t been recovering at a good pace, and the markets are still choppy. And, of course, there are big questions about Europe — and whether the situation there could trigger another global market crash. In these types of conditions, it’s hard to remain calm when it comes to your money.
Before you panic, though, it’s a good idea to step back. Often, the solution is not to unceremoniously dump your investments, especially stocks. It’s better to have a measured response to the issue. Here are a few things you can do to in order to help you remain calm when you aren’t sure about the market:
1. Consider Index Funds
One of the biggest fears that people have is that their stock picks will tank. If you are in this camp, it’s important for your to reconsider your strategy. One way to stave off concerns about what’s next is to invest in index funds. Yes, low cost index funds will drop when the rest of the market does. However, when the market recovers, these funds often do as well. You don’t have to panic, thinking that you will experience a permanent setback, when you use index funds. Take steps to consider index funds, and you are far more likely to have peace of mind. Over time, investors in these investments have been handsomely rewarded.
2. Take a Big Picture View
Remember that in the short term, markets seem really volatile. It’s hard to see a trend line. However, if you “zoom out” and look at performance over time, you will see that stocks tend to smooth out, and a trend line that slopes upward develops. Keep in mind the big picture. It’s hard, when things look dismal, to consider the big picture, but you need to try. Look to the future. As long as the fundamentals of your investments are solid, there isn’t much reason to sell. Before selling a stock, or any other investment, consider the fundamentals. If nothing has changed, except the market, there is a good chance that the investment will recover in time.
3. Ignore Sensationalist Reports
It’s hard to ignore the financial media when its members are always screaming about the next catastrophe. However, you do need to try and tune out the hysteria. It’s too easy to get caught up in the hype. This suggestion applies to those investments that are being talked up, as well as those that are being talked down. Be wary of sensational headlines about imminent doom, as well as unstoppable investments destined to take off. Turn off the financial media, and you’ll be less likely to panic.
Do you have some suggestions for avoiding panic with your investments?
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.