By David R. Damm
Carolina Wealth Management, Inc.
A key part of managing your money is managing your emotions, particularly when the stock market is going through a period of uncertainty. Being able to keep your cool is one of the most valuable skills you can have as an investor.
#1: Stay on course by continuing to save
Even if the value of your holdings fluctuates, regularly adding to an account that’s designed for a long-term goal (ex: 401k account) may cushion the emotional impact of market swings. Using a dollar-cost averaging (investing a specific amount each month) approach, you may be getting a bargain by buying when prices are down.
#2: Stick with your game plan
Solid asset allocation is the basis of sound investing. One of the reasons a diversified portfolio is so important is that strong performance of some investments may help offset poor performance by others. Even with an appropriate asset allocation, some parts of a portfolio may struggle at any given time. Diversification can’t guarantee a profit or protect against a loss, but it can help you balance risks.
#3: Look in the rear-view mirror
If you’re investing long term, sometimes it helps to take a look back and see how far you’ve come. When your portfolio is down for the year, it can be easy to forget any progress you may already have made over the years. Think about why you made a specific investment in the first place. Are you still a long-term investor? Answering this question, can help you determine if you should change your investing strategy.
#4: Remember that everything’s relative
Portfolio returns of different investments is generally attributable to their asset allocation. If you’ve got a well-diversified portfolio, it could be useful to compare its overall performance to relevant benchmarks. For example, if you are investing in the stock market for the long-term, you should expect your portfolio to perform as well or better than the S&P 500. It may not happen each quarter but it should occur over time.
#5: Remind yourself that nothing lasts forever
Ups and downs are normal for the stock market. If you regret not selling at a market peak, or missed a bargain, remember that you’re likely to have other opportunities at some point. Having predetermined guidelines for buying and selling can prevent emotion from dictating investment decisions.