Ease your fears in the stock market with these 3 moves
Just as some of us seem more natural to be afraid of heights, snakes, or the dark than others, so are some of us who are anxious investors in our positions. We can tell ourselves that stock market dips happen a lot, and we can remind ourselves that the US market has a long record of recovering from deflation. But at the end of the day, it can be hard to dismiss the fear that you might lose a lot of your hard-earned money.
Take it from someone who was there. I am a firm believer in the power of investing, and have been doing so for many years. But I also know how it feels to lie awake at night worrying about my wallet during periods of volatility. And it took a long time to subside my fears and adopt a more weighty approach Buying and holding stocks.
The one thing that really helped me alleviate stock market concerns was taking active steps to protect my portfolio. If you are by nature a nervous investor, these steps may help too.
1. Invest appropriately for your age
Stocks can be risky, and if the value of your portfolio locks up at a time when you need to cash out, you could end up getting into huge losses. But if you use an age-appropriate personalization strategy, that shouldn’t be a big deal.
At the moment, I have a lot of my portfolio in stocks. But I also don’t plan on retiring for a number of contracts, so for me, this allotment makes sense. Let’s say the stock market goes down tomorrow and it takes two years for my portfolio to regain its lost value. Since I don’t plan to cash out my stock anytime soon, this tip in the near term may not affect me at all.
If you’re nearing retirement, I highly recommend evaluating your portfolio and making sure you’re not investing too much in stocks. Having a healthy percentage in safer alternatives like bonds will give you assets to take advantage of that likely won’t hold back in a market correction or decline, and protect your portfolio from the possibility of a stock market crash in the not-too-distant future.
2. Maintain a diversified portfolio
Even though I don’t plan to cash in on my investment for many years, I’m still a firm believer in it diversification. Having a portfolio of stocks across a range of market sectors helps me feel less concerned about potential downturns that could hit certain sectors hard.
For example, I own some of them technology stock. But do tech stocks make up 90% of my portfolio? No. This setup will make me uncomfortable, because if tech stocks take a heavy hit during a period market crash, The value of my wallet is going to sink in too soon.
A good way to ease your stock market fears is to maintain a good mix of stocks. And you should aim to invest outside of stocks as well.
I also love to own publicly traded real estate investment trusts (Real estate investment trusts). Their shares are traded the same way you trade stocks, but their values do not always rise and fall directly with the fluctuations of the stock market. And because they are required to distribute most of their profits to their shareholders, they can be solid income investments, even if they don’t always achieve the most impressive growth in stock prices. You may find that REITs fit in well with your investment strategy as well.
3. Have cash on hand for emergencies
The most effective strategy I’ve used in my efforts to become a quieter investor is to maintain a strong emergency fund.
I tend to keep living expenses of about 12 months in the bank. Most people can have less money, but I have my reasons (such as being self-employed and therefore not eligible for unemployment benefits) for wanting a bigger pillow.
Having that cash in the bank has, in the past, allowed me to leave my investments alone when I needed the money in times when the stock market was going down. Increasing your emergency cash reserves can help you avoid selling stocks at inopportune moments, too.
More wealth, less stress
Investing can be a nerve-wracking experience – but it doesn’t have to be. It’s okay to be a little anxious about it, as long as you use that anxiety to guide you toward tactics that can help you weather the inevitable downturns in the market. With the right strategies, you’ll be able to buy and hold stocks long-term with greater confidence – and with much less stress.