We’re big fans of Building Bread. An educator turned financial advisor, Kevin backs up his claims with some legit credentials.
Don’t freak out
According to a MagnifyMoney survey, 42% of Americans sold at least one stock as a response to the pandemic in March 2020. While some wanted cash on hand in case of a recession, 35% feared a market crash.
When markets take a dive and bear markets roll in, it’s natural to feel an immediate sense of panic. We see our portfolios dropping and our hard-earned savings seemingly evaporating before our eyes. We can’t help but feel overwhelmed and scared. But that may not be the best financial plan.
Allowing emotions to take over can result in poor investing decisions. We might sell our stocks when we should be holding on, or buy into a stock when we should be selling. It’s important to stay calm and rational when investing, and to make decisions based on sound financial planning rather than emotions.
Also, remember that panic uncertainty and selling locks in your losses since pulling out of your investments during a decline can make it tougher to recover when the market eventually rebounds as it did shortly after the March 2020 downturn.
Don’t let yourself feel panicked or anxious when the markets take a dive – instead, stay focused on your long-term strategy. Remember, over time, the stock market has always gone up.
Focus on your long-term strategy
If you expect to make large profits every year, you are likely to be disappointed. It’s important to have realistic expectations about investment returns.
And most importantly, are you confident in your investment plan?
If you’re feeling good about your plan and still want to invest, don’t let short-term market fluctuations scare you off. Instead, practice one of our favorite money mindset techniques: reframing. Think of these lows as an opportunity to buy stocks at a discounted price. Just be sure to keep your eye on the long game, and avoid responding to day-to-day market movements by assessing your feelings before making any changes to your portfolio.
Why is that? The manual, conscious act of investing and saving means your ability to do it over time will likely waiver. Automation reduces the risk posed by this will-power fatigue.
Not to mention, saving and investing gets easier overtime with automation. The status quo bias means people prefer that things stay as they are, including regular intervals of automated savings.
Bear markets and recessions happen… But so do bull markets.
Bear markets and recessions are a fact of life. While it’s hard to predict them, know how long they’ll last, or how severely they will impact stock prices, recessions and bear markets are part of a cycle. Not only will you survive it, there are ways to position yourself to financially benefit from them.
For starters, remember to live below your means. It’s a little easier to be less financially stressed about a bear market when you have more money. Make sure you understand where you are, how much income you have coming in, and that you have enough to cover your expenses. Basic steps to money management will help you save money and stress less.
Invest in your 401k. Company matches combined with investing consistently and regularly during a downturn can into profits during recovery.
Stay diversified. Don’t put all of your eggs in one basket. This means that if you jumped on the crypto bandwagon, but didn’t invest in the S&P500, now might be a good time to diversify your assets.
Education is key
We fear what we don’t understand, but scared money don’t make money. We all need to face that fear and understand some foundations of how money and investments work.
My aunt always used to tell me, “you can’t control the cards you’re dealt. You can only control the way you play the game.” When it comes to investing, the same is true. You can’t change what the market is doing. You can’t control whether or not student loans are forgiven or whether or not the fed is increasing interest rates. What you can control is the way you manage your cards, or in this case your money and investments.