Ripple effects from the global financial crisis and recession of 2008 are etched in our memory. In a previous post, A Fear-Driven Investor, we discussed the tendencies investors display when decisions are driven by fear or greed. When fearful investors can let go of what scares them about the market, the course evens. It’s not unlike letting go of fears in other areas of life.
When I think of the fear-driven investor, I think about what happens to confidence and decision making when we feel worried and anxious. Have you ever tried doing anything when you are worried and anxious? I think about the first time I went kayaking on Lake Huron with my sister.
My sister was more expert than I. I imagined a big, smooth pond and a sleek little kayak but I really had no idea what I was doing especially when the storm clouds blew in. My idea of kayaking was to relax more and stay physically fit; however I was a bit fearful and anxious about tipping over when the waves got bigger!
What happens to anxious kayakers? I quickly found out! When your body is loose, you can move the boat and make adjustments. When you get anxious and stiff, the boat becomes tippy and unstable. Once I understood how one decision affected another, I began to relax and I started doing much better.
If you are driven by news rather than an investment plan, you may end up tipping your portfolio like I tipped my canoe.
Want to avoid getting “wet”? Here are 3 tips for investors to help reduce anxiety and promote a smoother ride:
- Set realistic expectations - Trying to refine the future to a point where you will never be surprised creates a headwind that is hard to overcome.
- Understand the effect your financial decisions have on other financial issues - Focus on your own behavior, not the market’s behavior.
- Re-evaluate your investment plan periodically - Small and consistent course corrections are just as important as the plan.
I still kayak on occasion, and I’m always reminding myself to stay relaxed and in the flow. It’s something I remind myself on a regular basis when planning investments as well. It’s much easier to keep your boat afloat when you loosen up, especially when the investment waters get choppy.
Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. Investing involves risk, including risk of loss.