Investing in the stock market and a roller coaster ride of similarities.
Watching your stock up and exhilaration that comes with it is a roller coaster going up. And then inevitably there is a drop from the top that is not so much fun.
Fear sets in as you watch all the gains evaporate and then your original capital becoming at risk.
Knowing that the stock market could be like a roller coaster creates fear by itself. The fear of loss prevents the tremendous gains that the stock market can offer despite the losses.
Fear websites in the beginning ornamental interfere with the logical approach to investing that is necessary for long-term gains.
It is critical to acknowledge this fear and place tactics and strategies to manage it.
Very few people have the experience and a proven track record on investment to offer suggestions like Warren Buffett.
Here are a few pointers paraphrased from him.
- We should understand that short-term losses are inevitable and you need to set your limits to what you can afford to lose and still stay the market for long-term gains.
- We should understand that greets sets in when everybody seems to be making money in the market which is usually a top of the market. Fear sets in when everybody seems to be losing in the stock market which is usually the bottom of the market.
- The public and smart money often point opposite directions in their timing. Smart money buys when the public sells and in this market money cells when the public begins to buy.
Unlike your roller coaster ride that moves in a circular motion, stock market seems to undulate up-and-down but couldn’t afford trend over long periods. It may be difficult to predict exact up-and-down undulations, but if the past is any indication of the future the stock market over the long term seems to move up.
However, the amount of risk that you can afford may exceed a large percentage drop in the stock market. Also, age may be a factor in the ability to wait for the market to recover. It is hard to recover from an investment loss at age 6o when plan retirement is at 65. On the other hand is easier to accept the loss at age 40 planned retirement at age 55.
Diversification and a balanced portfolio can help reduce the stock market exposure and risk and keep some of the potentials it has to offer.
Remember diversification and balancing the portfolio is not something you do once. Monitoring progress and rebalancing and reallocating is a continuous part of the process.
Placing tactics and strategies both in investing in the stock market as well as diversifying your investment portfolio ahead of time helps you manage the fear and agreed that it will enter the picture at some point.
The following reminders help you focus on managing fear.
Fear is not a logical emotion is a primal response that can be controlled through training. Imagine a boxer who will keep his eyes open as the punch is landing on his face. That is not a normal fear-based response. It tastes accomplished through training.
This is why it is necessary to have a written specific investment plan that you can follow. Just like a boxer who trains with a sparring partner in preparation for a match.
Managing fear and being foolhardy are not the same thing. You need to calculate the race you can take and minimize unnecessary risks. For example, high tech stocks may be attractive but dividend-paying stocks may provide a safe environment. Choosing the one that fits your goals and diversifying can help you benefit from upturn as well as minimize the risk of the downturn.
Your strategy should include purchases at the times that most people are too afraid to buy. Your tactic should include selling what you will not by instead of keeping it.
These strategies should also help you take profits regularly instead of losing what you gain by waiting too long.
As is the case in health care, it is always a good idea to consult with an expert instead of relying on material including this one as the only advice.