A bumpy stock market can provide quite a ride. For many, nothing matches the thrill of knowing you made a bundle investing in a certain stock or fund.
But when the stock market begins to drop, investment fears set in.
Those fears can take over your capacity to manage your money and investments successfully unless you confront them head-on.
Consider Warren Buffer’s investment strategy, his thoughts on investment fears and how you can overcome them:
“People who place money in the stock market should do so with a long-term outlook. You need to be comfortable with short-term losses to reap the rewards of long-term gains.” – Warren Buffet
Buffet believes that the public has it backward when it comes to managing their feelings during market fluctuations.
Warren Buffet believes that when “everyone” is saying how great the stock market is doing and discussing the incredible growth of their stocks and funds, this is the time to be concerned.
In other words, don’t follow the crowd when it comes to your investment portfolio.
On the other hand, when the market is down and everyone’s investment fears are on high alert, that’s the best time to buy.
The rationale behind this second argument is that since everything costs less in a down market and we’re in the market for the long haul, we’re bound to make a profit long-term.
How to minimize your investment fears
#1. Recognize that fear is a normal human emotion.
You’re bound to experience fear at some points in your life and in varying situations.
Fear is healthy in the sense that if your gut is telling you something is scary, there may be a good reason for that fear.
But if you can reason through the fear – in this case, your investment fear – you stand to experience healthy increases in your stock accounts.
#2. Take your current situation into consideration:
if you’re due to retire in 5 years, you might not have enough time to invest in aggressive growth stocks and experience growth. However, if you still have 15 or 20 more years of working and saving, Buffett’s logic might work for you.
#3. Minimize your risks.
Remind yourself that if you’ve diversified your investment portfolio as investment experts suggest, your chances of losing large amounts of money are greatly reduced.
Understand that there will always be investment risk and the name of the game is to hedge those risks as much as possible, to reduce the risk exposure with every underlying investment.
#4. Make wise investments in spite of your fear.
Thoroughly research your investments and establish “Feel the fear and do it anyway” as your personal mantra.
With judicious investments, your money will grow and this, in itself, may lessen your fears.
Make one or two investments when prices are down, as long as you’ve got some years to watch your money build.
As your profits grow, make a few more investments. Getting used to making investments puts this activity into your comfort zone, where it’s less scary.
#5. Avoid letting your fear run amuck.
It’s best not to let your fear consume you to the degree that you’re withdrawing from opportunities to invest and reap benefits long-term.
#6. Recognize that the stock market will rise and fall, again.
Accept the fact that investing in the stock market is unpredictable. It is what it is.
Even if you’re a stock analyst, you can’t predict with perfect accuracy which stocks and funds will soar and which will tank.
Learning to confront and handle your investment fears are important aspects of your investment life.
Gathering information from market experts, such as Warren Buffet, and examining your feelings about investing can make the difference between allowing your fear to consume you and moving through your fear to skillfully manage your portfolio.
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