Let’s face it: the stock market’s been shaky and bearish, and no one likes seeing their portfolio go down. And there’s such a thing as cutting one’s losses. But don’t panic and do something foolish over a market setback that turns out to be temporary; you could be throwing the baby out with the bathwater. Here’s a few ways to calm your head and stay positive when the seas of investing get rocky.
(1) Look around.
Is it just your portfolio that’s doing badly, or is the market down in general? Check the S & P 500. Check the NASDAQ index or the NYSE stats or other general stock market indicators and see if we’re in a decline, a recession or worse. Heck, look in on your friends’ portfolios if your fellow investors are comfortable speaking frankly about money. If your portfolio was the only one to take a dive, maybe you’ve got some losers on your hands to unload; some securities are assets in name but liabilities in practice. But if things are bad for everyone, and you’re all in the same boat, you probably aren’t going to do much better outside the boat.
A financial advisor will be happy to discuss market conditions; chances are they’ve got other clients asking the same questions. Or check out financial magazines, Web sites and TV shows to get the perspective of intelligent, well-read people. The market’s a strange beast to predict, and no one has all the answers, but people can tell a dip from an impending crash.
(2) Look to history.
Buy-and-hold investing works because in general, the market averages about 10% return every year. You’ve read it before, but if you’ve never actually sat down and crunched the numbers, go do it; it might make you feel better. Remember, if you’d bought assets before the Great Depression and held them throughout that calamity, you’d have emerged all right in the end. And things aren’t even that bad; you don’t see any breadlines out there, do you? Patient investors are smart investors. You only officially lose money on the day you decide to sell.
(3) Or don’t look at all.
One of the keys to successful investing is to make it automatic. Some investors just aren’t cut out for reshuffling their portfolios all the time, they just set aside a fixed amount every month and that works for them. If that’s you, that’s great! The evidence is in place that the committed, regular investor wins out over the twitchy and the panicking, and if blind faith helps you sleep at night, you have worse things to go on. Don’t let a few dark days spoil a positive investing habit.
(4) Think of it as a sale.
If you’re a more active investor, maybe you should be glad when the price dips. Think about it from this perspective: Your favorite stock just went on sale, and you can load up on it just like your favorite brand of premium ice cream. If you bought a stock at $20 and it seemed like a good deal then, it’s an even better deal at $18. If it’s going to go to $30 in the end, then this downturn is a chance to profit by twelve dollars rather than ten. “Buy low, sell high,” they say. Guess what’s happening now.
In 1974, when the economy was truly terrible, Warren Buffett was interviewed by Forbes, and said: “Now is the time to invest and get rich.” Market conditions may not be as bearish now as they were in 1974, but the point remains: a negative patch is a bad time to sell, but a great time to buy. Invest bravely!
(5) Think of it in tangible terms.
So much of investing is about numbers and charts and intangibles that we forget how closely it can relate to the more concrete aspects of our lives. Hasn’t there ever been a time when you weren’t doing so well, but you turned it around and got back on your feet? Stocks and bonds and mutual funds may not spend their days as you and I do, but the market isn’t just the invisible hand Adam Smith spoke of; it’s tied to the decisions and actions of people just like you and me. The numbers, just like people, aren’t always going to be doing what you want. But those same numbers, just like people, are surprisingly, even endearingly resilient.
Let’s quote Warren Buffett’s again: “Be greedy when others are fearful.” He didn’t lose his shirt at the end of the day! So don’t let the gloom and doom of the naysayers and the negative, dark clouds over the market set you off track. Keep a positive attitude and a steady hand on the wheel of your investments. Smooth sailing!