Whether you are a seasoned investor or just getting started, the truth of the matter is, you face a pending recession. In fact, depending on your age you are probably facing multiple recessions throughout your lifetime. So my question is why do we get so worked up and fearful during a down economy when we know it is only natural, normal, and expected?
Yes, a declining market can be a frightening experience, seeing your portfolio value decrease can be a real gut check. It certainly makes things more difficult when every “reputable” news outlet paints a picture of doom and gloom. However, do we as individual investors need to buy into the media scare tactics, stress ourselves out and possibly make emotional decisions with our money that can have a lasting and negative impact on our lives? I don’t think so! The problem I often see is that many investors start investing before taking steps to building their financial foundation, leaving themselves vulnerable to reactionary investment decisions.
Investing without a solid foundation is like trying to build a skyscraper out of toothpicks. It’s not a wise decision. When it comes to your financial foundations it starts with understanding your personal “why.” What is your compelling story that motivates you to save and invest for your future. If you're saving for retirement in 30 years, do you really need to be worried about a short-term downturn in the market? This is one surface level example of how understanding your why could help calm fears associated with periods of significant short-term losses.
The next step to building a foundation is to start educating yourself about the various asset classes and investment opportunities available to you. Take the time to understand your personal risk tolerance and develop an investment strategy you can stick to even during volatile market conditions. Remember when I said, “you face a pending recession?” Well, your investment strategy needs to take this into consideration as well. If this sounds too daunting, consider seeking the advice of a financial planner to help you create a personalized investment plan that aligns with your financial goals.
The key takeaway here is to be proactive and not reactive. If you find yourself worrying that the stock market is down, it's essential to take a step back, take a deep breath, and resist the urge to make reactive decisions. Investing is a long-term game, and taking a proactive approach will ultimately help you achieve your financial goals.