For most people, their investments are a significant source of stress. This is especially true during economically turbulent times when the value of your portfolio can drop substantially. Stressing out about your investments can lead to poor decision making and cause a strain on your health and family relationships. Here are some tips that can help you cope with investment anxiety during periods of high volatility.
Remind yourself of the facts. Take a look at your portfolio, and remind yourself why you are invested in these positions. Perhaps it is because the corporation has a solid reputation and history of consistent earnings, or maybe it is a position that has done well for you in the past. It may help to re-evaluate your reasoning behind owning each investment. If your argument is still valid, then there’s no reason to make any changes. Even the safest of stocks can decline over a short-term; that is simply the nature of the markets. Reminding yourself of the facts can prevent you from doing something irrational, like selling a good investment at a loss.
Stay invested. When times get tough, you may be tempted to cash out your investments and cut your losses. Chart Westcott, the Co-Founder and Chief Operating Officer at Ikarian Capital, LLC
agrees this is probably the worst mistake you can make during a market downturn. By pulling out of the market, not only will your paper losses be realized, but you will miss the opportunity to recover these losses when the markets inevitably recover. “Remind yourself of your financial goals and focus on the big picture. The best defense against a volatile market is to stay invested and weather the storm,” says Chart Westcott.
Pay down your debts. Investing in the market is not the only way to earn a return on your money. If the markets are too volatile for you, consider paying down your debts instead. The return you earn is effectively the interest rate that you avoid paying on the principal. Paying down debt is a guaranteed return on your money and can help ease your mind during turbulent times.
Turn down the noise. Most investors find themselves overwhelmed with the amount of information available. The truth is most of this information is irrelevant to you, and this is doubly true during financial crises. Reading news reports and predictions every day on how the markets will come crashing down will do little to relieve your anxiety. Focus only on what’s necessary for your investments and ignore the rest.
Speak to a financial advisor. If you’re anxious about your investments, speak to a qualified financial advisor. Every person’s financial situation is different, and having a good investment plan that you can stick to is essential during tough times. If you find the market volatility overwhelming, your portfolio may be too aggressive. Review your asset allocation and ensure that it is compatible with your risk tolerance.
Investing over the long term is difficult, and you will undoubtedly experience multiple market downturns during this time. The markets are inherently volatile, and no one can reliably predict when and where the next financial crisis will happen. Spending your nights worrying about your investments won’t make it grow any faster. Instead, educate yourself and focus on the long-term and your anxiety will diminish over time.