One of my delightful clients described to me how her emotions mirrored the music on NPR when the stock market report came on. If the jingle was “We’re in the Money” she felt good, it meant the market was up and if it was “Stormy Weather” she felt bad, as that meant the market was down. If you are regular listener of NPR’s Marketplace, you can relate.
Research shows us that investors feel the sting of loss more deeply than they do the joy of gain. This emotional, visceral response to losing is strong. We want to avoid situations of loss. But taking some level of risk in the stock market is necessary for almost all of us in order to achieve our goals of financial independence. Understanding this emotional component and having a mindset and an action plan to counteract our gut reactions is crucial to the long term growth of our investments.
As we’ve had some recent days of down markets, it’s a good time to be reminded that ups and downs are inevitable in investing. While it is no fun, volatility is to be expected.
Here are some key points to remember in order to succeed as an investor:
Cultivate this Mindset:
You can’t beat the market over the long term
Market timing doesn’t work
Focus on what you can control (fees, savings rate, your asset allocation)
Investing is for the long term (match your risk level to your time horizon)
Execute this Action Plan:
Choose an investment mix wisely
Stick with your mix
Keep your investment costs low
If you are already a client, you know that I am a big fan of Vanguard funds. For a more extensive discussion, including supporting research, on the topics I’ve raised in this blog, see this link on the Vanguard website.
If you have any questions about how to implement your own Action Plan, please schedule a Get Acquainted meeting with us, we’d love to help you.
Photo credit – 2oth Century Fox Studios