Investors saw relief as the Federal Reserve Chairman corrected statements suggesting that they will slow the pace of further rate rises. The S&P ended up 4.20% higher last week, putting the year-to-date gain at about 3%. This comes after a month of market volatility that hasn’t been seen since Sept., 2011; investors’ emotions have been tried and tested.
Some investors look the other way while others make failed-attempts to save their portfolio from short-term losses, only leaving them on the sidelines as the market recovers. According to TheBalance.com, “It’s been academically proven that a disciplined approach to investing delivers higher market returns. Yeah, it’s boring; but it works. If you don't have discipline, you probably shouldn't be managing your own investments.”^1 Here are the emotional states that investors face.
When stocks increase in value, investors are excited to the point of setting themselves up for high expectations. When markets begin to falter, they feel anxious as their world (and plans) unravel in front of them. As markets continue to drop, investors may face capitulation and depression, the point when drastic action might be taken. This is also the time markets turn around and recover.
Here are some tips to manage your emotions during rough periods.
Understand that your emotional brain is bigger than your rational brain. Fear is a stronger emotion than greed. This is the reason market corrections are more sudden and dramatic, while recoveries are gradual and slow.
Meditate. Breathing exercises reduce anxiety and help bring mental clarity. Staying busy clearing your mind will keep you from making sell transactions in your portfolio. Consider doing a 3-day silent-stay meditation retreat that doesn’t have Wifi, and preferably during market trading days. ^2
Hire a professional to manage your investments. Beyond having a manager invest based on criteria, such as sticking with companies that have solid fundamentals or strong technicals, they may prove useful keeping you from making rash decisions, effectively saving you from costly mistakes.
At Eureka Wealth Management, I help my clients keep their eye on the goal and not make rash decisions during market events. I also help define risk tolerance and when clients may need their money back. This will allow the portfolio enough time to recover from any market calamity. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.
Financial Times, 12/1/18, The Day in the Markets
^2 Silentstay.com offers weekend and long-term stay retreats in Northern California and Central Italy and was recently featured in American Airlines magazine (link).