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Is fear of the future scaring you out of your investments? Being frightened to the extent that you develop antipathy for what lies ahead can be irreversibly damaging to your future.
Optimism isn’t just the best way of looking at life, it’s the most realistic when it comes to your personal finances. The foundation of your financial plan needs to rest squarely upon optimism. Pessimism won’t get you where you want to go.
Politics and Current Events: Unraveling Long-Term Plans
In today’s world, it’s sometimes difficult to keep politics out of your investment policy. However, politics is just one of the broader themes that can unravel your long-term financial plan. Upsetting news and current events often are a continuation of the process of being scared out of your overall financial strategy.
The antidote is a long-term financial plan grounded in the most reasonable historic perspective, namely optimism.
Managing Anxiety About the Future
Anxiety about what your financial future might look like is totally normal. If you develop and follow a sensible long-term investing philosophy, however, much of your anxiety will vanish.
Once you allow emotions to creep into your financial decisions, you’ll soon find yourself reacting and anticipating turmoil within the markets. Trying to stay connected to your long-term plan within this emotional framework can be a tall order.
Lessons from Market History
Instead, think about how the financial markets fared in uncertain periods in the past:
- During the 2008 financial crisis, a sharp downturn in the stock market preceded one of the longest bull markets in history.
- At the onset of the COVID pandemic, once again the stock market quickly declined only to be followed by a significant and lengthy rebound.
Can bad things happen in the financial markets? Yes. Does that mean you should always anticipate doom? History says no. Temporary, yet sometimes significant declines are already baked into long-term investing outcomes.
Avoiding Emotional Reactions
Your fight-or-flight mechanism probably gets activated every time you hear that the market is down. Just because the market has declined for a week, a month, or even a year doesn’t mean an all out financial disaster is in the making.
Of course, shifting your focus to the long-term doesn’t eradicate uncertainty. Some level of uncertainty within the investment markets is inevitable. If you think long-term, you will, however, be more aware of what you can control and what you can’t.
The Importance of Patience and Discipline
When you focus on the day to day market movements, it’s easy to get caught up in all the noise. If you shift your gaze to the long-term, you tend to be less emotional and more rational.
While the precise underlying circumstances are different for each market downturn, you don’t have to worry about the specifics. Know that the strength and resilience of the companies that make up the market continues unabated.
Panic and fear feed on themselves and can destroy your well conceived financial plan in an instant. Don’t go down that path. The best approach for your financial future is to exercise discipline and patience.
Related: The Link Between Wealth and Happiness: Myth or Reality?