Riding a rollercoaster? Stay calm. Flying through turbulence? Stay calm. Forgot your anniversary gift? Stay calm! Think about when you’re in situations like these – anxiety is high, your heart is racing, but you know that it will pass. It’s no different to riding out market downturns – patience, keeping a cool head and having faith in your strategy are key to keeping your investments secure.
“Have you ever tried to stay calm on a roller coaster? It’s just not possible. Your heart rate isn’t going to slow down while you’re hurtling along the track, upside-down, 100 feet above the ground.
The same is true when you’re watching your life’s savings evaporate while seemingly rational people talk about chaos, panic, and plague. It’s normal to feel anxiety.” (Morningstar)
Anxiety As Excitement
Staying calm is helpful in any anxiety-inducing situation, although a Brooks study on coping mechanisms revealed a different approach may prove more successful; embracing the “excitement” side of these situations may well result in better performance, not denying the anxious feelings, instead embracing them in a positive manner – saying “I am excited” versus “I am calm” appeared to yield a better result for an individual.
So, perhaps we can use this methodology when it comes to our investments, as Sarah Newcomb asks: “Can Fear Be Fun?”
“The idea here is that if we can tell ourselves that we feel excited rather than anxious, we will be better equipped to ride out the stomach-lurching drops in the market. Whether it’s a war, rampant inflation, rising interest rates, a malfunctioning supply chain, or anything else, we will see terrible days (weeks, months) in the market. As an investor, it’s normal to get scared. It’s ok. Instead of staying calm, treat it like a roller coaster, and turn the fear into fun.” (Morningstar)
Whilst managing investments may not be as exciting as a rollercoaster, choosing excitement over anxiety during turbulent times may offer a more rewarding mind frame. In fact, when markets are low, there provides an ample opportunity to purchase more investments as their prices are lower – this could be viewed as an “exciting” time for the medium to the long-term investor, as you will reap the benefits when the markets rebound (which they consistently do).
Avoiding emotional investing is something all investors should be aware of, and seeing the opportunities of being “excited” by investments, rather than anxious, can certainly make the journey easier and stop negative moves from being made, those which affect your portfolio returns — namely, cashing out due to fear and missing out on the subsequent gains when the market rallies.
Choose Optimism
There are opportunities in the markets all the time, even when the markets are low. You will find numerous articles telling you to “keep calm”, “it’s nothing new”, “buy the dip” etc., and they’re not just saying this for nothing.
Looking back at the history of the stock market, downturns frequently happen time and time again: markets fall, then rebound – and missing the best days can be detrimental to your gains. You can’t predict when these events will happen, so it’s best to stay invested and ride it out.
Furthermore, companies will be trading at discounted rates, offering a prime opportunity to buy when things are low; as the markets rebound, you will have generated a greater gain by purchasing on the low – “buy the dips”.
For medium-to- long-term investors, remaining optimistic about your strategy over the long run is essential to the success of your investments, rather than being anxious at short-term fluctuations. And remember that these downturns could last a year or more, but when considering your investment timeline, you will benefit overall by remaining invested rather than timing the market.
Know Your Strategy
Successful medium-to long-term investors do not listen to market noise, nor worry about shorter-term movements in the markets as – over the long run – it won’t affect their strategy. And this is backed up by historical data showing that markets rebound, timing the market doesn’t prove hugely successful, and missing the best days in the markets by cashing out can have catastrophic consequences.
Check out this analysis by Charles Schwab which reviews different styles of investors versus a “perfectly” timed investor – second place was someone who simply invested once each year, not thinking about when, but consistently committed to it; they were only $16,000 short off the “perfect” investors.
Trust in data, trust in your strategy — turn your anxiety into excitement and enjoy riding the market!
