One way to look at the stock market is to pay attention to investors’ emotions. Are they greedy or fearful?
Take a minute to think about how you are currently feeling with regard to the stock market. Are you feeling fearful or greedy? Now consider that other investors may also feel this way! However, Warren Buffett once said, “It is wise for investors to be fearful when others are greedy, and greedy when others are fearful.”
Does the current market make you more anxious about your retirement plan? Are you watching your 401k and investment accounts, and feel worried that you won’t be able to retire as planned? Did you know that you are not alone? According to a survey from Bankrate.com, “55% of workers said they feel they are behind on their retirement savings.”
Transamerica recently published a survey that gives an overall retirement outlook that states, “Baby Boomers have been susceptible to employment risks, volatility in the financial markets, and increasing inflation – all of which could disrupt their retirement plans.”
They also note that:
- Forty percent of Baby Boomer workers expect Social Security to be their primary source of retirement income.
- Eighty-three percent are saving for retirement in an employer- sponsored 401(k) or similar plan and/or outside the workplace.
- They began saving at age 35 (median).
- Those participating in a 401(k) or similar plan contribute 10 percent (median) of their annual pay.
- Baby Boomer workers have saved $162,000 (estimated median) in total household retirement accounts, but only $15,000 (median) in emergency savings.
- Almost half of Baby Boomer workers expect to work past age 70 or do not plan to retire.
Maybe you are close to the medians listed above, or maybe you were careful in your planning, and managed to save a bit more! Remember, having a solid plan is crucial. At the same time, you may need to be flexible to pivot and adjust your strategy when necessary.
Here are some investor’s tips on combating anxiety in a fluctuating market, which hopefully will bring you some peace of mind!
When people are fearful:
- Be greedy – this is when you should buy stocks. Why? Because when prices are low, stocks are effectively “on sale”. This is an opportune time to buy stocks.
- You can only control what you can control. Don’t forget you are not in control of the market. Even though you probably wish you had a say in what happens, you don’t. You have to trust that you are making the right decisions and let it go – and then focus on what you do have control over. If history is any indicator, everything is cyclical and the market will eventually recover.
- Turn off the TV or the news, and take a break from the constant influx of noise. Stop being hyper-focused on what is happening. Relax, and wait for the market to correct itself. What you listen to can affect your thoughts and emotions. Choose to listen to things that bring you more joy and peace, and allow yourself to shift your focus away from the negative. Listening to music that uplifts you is a great way to regulate your mood!
- When in doubt, ZOOM OUT! Keep a big-picture perspective by zooming out, not in. This is when you can gain a broader perspective, and look towards the horizon. Stay focused on your long-term dreams and remember the decisions you made with the end in mind.
- Re-evaluate your short-term and long-term goals, and adjust when needed. Maybe your time horizon for a few of your goals has changed? That’s ok! Allow yourself the flexibility to adjust timelines to reach your goals, and give yourself grace as you trust in your overall plan.
- Discuss your concerns with your financial advisor. An advisor is not only there to manage your investments, but also to serve as a guide and encouragement to help you when your emotions run high. In fact, many of our clients emphasize the benefits of long-term planning, and the peace-of-mind that they experience when working with our team.
- Maybe all you need is to adjust your risk level. Modifying your risk can help you have peace of mind if you are nervous about fluctuating trends. Talk to an advisor about your asset allocations and whether you should adjust your risk profile.
When people are greedy:
The only difference between the two scenarios is how you act concerning the stock market and your investments. It seems that many people want to get rich quickly. This sort of get-rich-quick greed brings to mind the big dotcom boom in the 90s, where everyone wanted to invest in start-ups, to hopefully, make it big fast. Do you remember how greedy investors got? According to Investopedia, “Like many other asset bubbles in history, it eventually burst, depressing stock prices from 2000 to 2002.”
When other people begin to get too greedy, be more cautious. Overall, you don’t want emotions to govern your investment behavior. As your advisor, we want you to base decisions on your investment policy statement, financial plan, and long-term goals and dreams. At Goodwin Investment Advisory —-
We believe in decision-making based on a process and not on emotion. We curate strategies based on a history of strong performance, while dynamically positioning for the future.
Stay true to the fundamentals of investing, such as dollar-cost-averaging and sticking to a long-term horizon. Do not allow the ups and downs of the market to affect your long-term plan. Maybe, the best thing to do is to ignore the herd and the emotional, knee-jerk responses. Because none of us have a crystal ball, it is hard, maybe even impossible, to time the market – i.e. to know exactly when to buy or when to sell. Therefore we often say: “it is not about timing the market, but about time in the market!” Experience has shown that long-term investments yield good results.
In conclusion, when in doubt, ZOOM OUT! And hopefully this article serves as a reminder of how you can navigate your emotions and maintain peace of mind as you approach retirement, despite the emotional landscape.
Past performance does not guarantee future results, and GIA cannot guarantee any specific performance. The thoughts shared here are based on our experience, and your specific experience may be different. Every person’s situation is unique, and therefore please contact your advisor to discuss the options that may be applicable to your situation. GIA does not receive any compensation from the references provided, and the reference here should not be seen as an endorsement of the companies or reports.