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Fear of the stock market is the most pervasive fear of all for many investors. Conquering this fear is instrumental to achieving your most important financial life goals. On the other hand, succumbing to this fear can place your financial future in peril.
Fear of the market is driven mostly by emotions and therefore doesn’t always respond to logic. As the chart below shows, emotions and logic actually function on different geometric planes and these planes don’t intersect. This is why in many instances, all the numbers, graphs, and market history details fall flat in helping investors deal with their market fear.
Visualize What You Want
The most effective way to conquer fear of the market is by emotionally connecting the future to your actions today. You need to be able to visualize what you want in the future (and what you don’t want). The clearer that vision is, the stronger the connection to what actions are needed today.
If your objective is to be in a position to continue your pre-retirement lifestyle throughout retirement, (including living cost increases), being invested in the stock market likely isn’t optional. Of course you don’t have to be in the stock market, but your options for reliably producing the long-term returns needed outside of the stock market are very limited. 10 or 20 years from now you’ll wish you invested more in the stock market.
Create Space With Financial Planning
The financial planning process allows you to offload some of the fear and puts space between you and your investments. This space is incredibly important because, as humans, we aren’t wired for disciplined investing. We are much more likely to react to something that happened over the last few days versus the performance of the overall market over the past few years. You get to choose, focus on days or decades. Your financial future is likely at stake. Choose wisely.
Learning to conquer fear of the stock market starts with realistic expectations. The broad stock market is positive only 54% of the trading days so obviously, there will be plenty of days, (about 46%), when stock prices retreat. The upshot, however, is prices are positive about 75% of the years. You should expect the water to be wet when you dive into the pool. Don’t be surprised!
There’s an inverse relationship between how much you pay attention to inconsequential distractions and achieving the financial outcomes you want. Avoid the trivial, focus on your long-term future. Start there.