The stock market right now is crazy. Down 250 points one day, up 275 the next, you really don’t have any idea of where the trend is going to be at any given time. People are worried about the mortgage crisis, recession talk, and even the downfall of mighty Google as a viable money-maker. Is it all really worth getting worked up over? Well there’s definitely no doubt that our economy has some serious issues going on right now, but for the most part slow and steady is the way to go when it comes to investing.
One our biggest problems is that our society is so integrated with mass media that we get a lot of news extremely fast. Whether it’s via the internet, TV, or radio, we always know every little thing that’s going on. You would think that more information is better when it comes to investing, and it definitely can be. But to the average investor, more information may just throw you off course and possibly sway you into thinking you need to make a certain move with your money that you normally wouldn’t have. Plus, our media’s love affair with the Chicken Little syndrome (ie, the sky is always falling) will naturally make you overreact to market conditions and make you think certain things that you naturally wouldn’t.
The key to investing is to stay as emotionally detached as you possibly can. When we make emotional decisions, we usually make bad decisions. This is just because we allow our emotion to override our rationale, and we end up doing something not because it’s the smart thing, but because we “feel” it’s the right thing to do. When it comes to your money (and possibly your retirement money), these are dangerous decisions to be making. No matter what is going on in the market on a given day, you still need to be able to analyze your portfolio with a clear head and make decisions based on investment methods, not on emotional ones.
So what should we do in a market like this? If you feel fairly comfortable with your holdings for the long-term, then maybe nothing. For instance I have a quite a bit of money in a few Vanguard index funds that may not be doing all that great so far this year, but over the long term have provided (and should continue to provide) really good returns. If you’re just not sure about your current portfolio, then maybe you can move some of that money into something you feel more comfortable about (maybe a mutual fund instead of certain stocks to get more diversification), then stay the course that way.
The market will have down years, you have to be prepared for that. If you jump to move your money every time someone in the media says it’s a crisis, you’re going to be jumping a lot and losing a lot of money in fees and possible returns along the way. The key to investing sometimes is doing nothing…and even more so just not watching all the things that go on every day in financial news. If you find yourself getting squeamish over all the recession fears, just try to not watch the news for a couple of days. Don’t look at your portfolio every single day for a change and let your initial plan go through it’s cycles. As crazy as it sounds, sometimes closing your eyes is the best investing advice you can get. When we get to be too emotional over the market, we can be our own worst enemies.
April 22nd, 2008 at 8:11 pm
[…] Know The Ledge says to stay the course with your investments. […]