Managing Emotions and Expectations during Market Uncertainty
Riding the highs, and experiencing the lows, it is the way of the investment market. However, what if we told you that the key to sound and quality investing is learning how to keep it cool when the market is in turmoil? In this article, we are going to look at some of the tools that can help you manage your emotions and expectationsduring market uncertainty.
Take some time to relax
When you first open your phone, you might start to freak out. No matter if the market is a bull or a bear, the changes can impact you in the thousands of dollars. However, that is when you need to take a minute and relax. A couple of our favourite ways to relax are to shut your TV off and avoid social media, even if for just a half day. Do some deep breathing exercises, get in a workout and even take a walk. Taking a walk speaks to your "fight or flight" response, and almost tricks your brain into think you're fleeing, allowing it to relax. Taking some time before sending that email or picking up the phone will make the difference between an emotional decision and a smart decision.
Remember the Past
The stock market is nothing but repetitive, and it is part of the reason that experts can predict what will happen. So, let’s take the 2018 market dip in Oct-December. The market started to tank, and investors were panicking. It all ended on Christmas Eve. Then within a few months, stocks were back to all-time highs, and the bull market roared on. No matter the issue, the market returns to normal, that is what history has taught us. If you can remember that the market will always correct itself, you will be well on your way to managing your emotions and expectations during market uncertainty.
Understand the Law of Large Numbers
A $100,000 portfolio that dips by 10% goes down in value by $10,000, while a million dollar portfolio drops by $100,000. This works both ways. Up 10%? That's up $10,000 and $100,000 respectively. That said, assuming you don't sell in a market trough, you don't lose money, rather the share you own are simply worth less at the moment; you still own the same amount of shares. For example, if you have a million dollar portfolio, and every share in that portfolio is worth $1 suddenly drops to 80 cents per share, that means you have had a 20% decrease in value, but you still own the one million shares. Your shares don't suddenly vanish. Not understanding this and the law of large numbers is a common reason investors make irrational decisions resulting in more pain.
Depend on your financial advisor
You have trusted your financial advisor through the good times, so why would that change when the market takes a bit of a downturn? Your financial advisor will be able to navigate the choppy seas and ensure that your money comes out stronger. They are the financial experts, and no matter what is happening on the market, they are there for you. Remember to trust your financial advisor, and you will be able to manage your emotions with ease.
When it comes to managing emotions and expectations during market uncertainty, there are three essential tools that you can use. You should look to take some time to relax; you should remember that the market always corrects itself over time; and that your financial advisor is there for a reason. Using these tools will help your overall business strategy and help you avoid emotional investing!
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2021 Focus Asset Management & Advisor Websites.