How to Eliminate Market Anxiety When Everyone is Panicking
It’s easy to get anxious as stock prices fluctuate so much, especially if you’re planning to withdraw from your retirement portfolio in the next few years. These periods of panic can lead to emotional investing, such as selling stocks early or waiting too long on the sidelines to invest during a market upswing.
A solid investment plan can help you avoid emotional investing and overcome market anxiety. Here are four steps you should take.
1. Have a savings account
Concerns can increase if the money you are investing is money you will need in the short term, as that short term means you may need to sell the investment at an inopportune time. Investors who don’t need to sell their stocks for at least five years will have an easier time navigating sharp fluctuations than someone who doesn’t have enough cash to pay for their priorities and short-term goals.
Financial advisors recommend building an emergency fund that can cover at least three to six months of your living expenses. However, retirees and people with fixed incomes may want to save more, such as enough to cover one to three years of living expenses. That way, you have cash readily available to pay off unexpected debt or cover your needs if you lose your job. You can put this money in a high-yield savings account to earn interest.
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2. Do it yourself
Investing doesn’t have to involve analyzing every stock and trying to decide which one will go up next. In fact, investing in broadly diversified index funds and exchange-traded funds (ETFs) is often an easy and effective way, and setting up automatic investments in these funds makes the process even easier. Automatic investing allows your brokerage firm to withdraw money from your bank account and deposit it into funds. You can choose how much to donate automatically.
Automated investing allows you to spend less time learning your portfolio while still benefiting from compound growth. When stocks go down, automatic investing ensures that you buy stocks at a discount – even if the market conditions make you feel anxious. Then, you get more exposure to the stock market when rebonding occurs.
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3. Measure regularly
An important part of investing is maintaining a diversified portfolio. That means allocating your money to different types of assets – such as stocks and bonds – and assets of different sizes as well as international and domestic ones. That way, parts of your portfolio will be able to hold steady or outperform if other areas suffer a downturn.
But just because your portfolio is well diversified doesn’t mean it will stay that way. You need to regularly, such as quarterly or annually, check your portfolio to make sure that no one area is taking too much of your portfolio. If your share of technology stocks, for example, is ballooning but your share of international stocks is down, you may want to sell some technology stocks and buy foreign stocks (or funds that cover these stocks). Regularly rebalancing your portfolio can help reduce risk during market ups and downs.
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4. Take a break from the topics
Just because the news points to a 2% drop in the S&P 500 doesn’t mean you should panic. But that is easier said than done.
If you find yourself succumbing to headline-based market panic, take a break from reading investment stories and focus on the long term. Getting out of your brokerage account during a correction, especially if you used automatic investing, can help you avoid panic.
