Investing can be very simple: buy low, sell high. Many folks, however, ride the train of greed – or fear – or perhaps both. What I mean by this is that they keep adding money to that well-performing stock or fund right in time for it to come back down again. On the opposite side, they fear a possible “Market Crash” and bail out of their investments before they have any time to grow. The emotions of up and down markets are exhausting. And the powerful forces of greed and/or fear can easily throw your investments off track. These are recurring topics that I discuss with my clients every day.
Although it’s hard to swallow in the moment, when markets are down we can look at it as providing “buying opportunities,” and when markets are soaring, we discuss rebalancing accounts and selling to reap our gains. Keep in mind that deciding when the market is “high” or “low” is VERY difficult to determine. But, understanding market cycles, working with your financial professional, and being patient enough to wait months or years can be beneficial to you! Here’s some tips to staying away from greed and fear when you invest, and even using them to your advantage.
Understand The October Effect
Year after year, many Octobers have been subject to significant market declines. Headlines in all red, streaming online and on TV. It’s almost as if investors fear the month itself; assuming it will cause drops. Yet, in a significant number of years the stock market has bounced back and actually gone higher in October.
So why wouldn’t we look at it as a buying opportunity? FEAR. But by understanding the effect, we can overcome these negative headlines and theories about October being such a bad time for investing.
Tune Out the Noise
Reduce your intake of headlines and news stories. Their one job is to catch your interest; they need to sell stories to make money, after all. The big red letters across your computer screen have a motive. Understanding this can help you digest the news more accurately, and as a result use it to your advantage when investing. Plus, unplugging from the noise of social media and the constant news cycle could be good for your health and peace of mind.
Look at Market Data
Today, there’s an actual Fear and Greed Index. Crazy, right? But, 100% real. This index reflects the average market sentiment. You can use this (other people’s fear and greed, we could say) as a tool to help make your own long-term financial decisions together with your financial advisor.
Fight Investment Fears
Can you convince yourself to buy when others are skeptical? What if you take the down-market opportunity to buy… and it continues down? To be sure, fighting against fear isn’t easy, especially when it comes down to your hard-earned money.
“Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffett
When your portfolio is way down, say 1/3 or more, it’s easy to feel vulnerable — with a desire for safety that is stronger than ever. In moments like this, famous investor Warren Buffett himself recommends taking on more risk and investing in the upside potential. That is the greatest challenge for most investors.
I encourage you to work with your advisor and look for that guidance: to take on risk that is suitable to your situation when times are meek and look to rebalance when markets are high. Sit down with a CFP® and work toward the best financial plan for you.
April 2019
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
