A bumpy stock market can provide quite a ride. For many, nothing matches the thrill of knowing you made a bundle investing in a certain stock or fund. But when the stock market begins to drop, investment fears set in. Those fears can take over your capacity to manage your money and investments successfully, unless you confront them head-on.
Warren Buffett’s Ideas Regarding Investment Fears
Consider the advice of financier Warren Buffet:
- According to Buffet, people who place money in the stock market should do so with a long-term outlook. You need to be comfortable with short-term losses to reap the rewards of long-term gains.
- Interestingly, Buffet postulates that the two emotions most experienced by those who invest in the stock market are greed and fear.
- Buffet believes that the public has it backwards when it comes to managing their feelings during market fluctuations. Smarter investors do the opposite of what the majority of investors do.
- When “everyone” is saying how great the stock market is doing and discussing the incredible growth of their stocks and funds, this is the time to be leery. In other words, don’t follow the crowd when it comes to your investment portfolio.
- On the other hand, when the market is down and everyone’s investment fears are on high alert, that’s the best time to buy. His reasoning is that, since everything costs less in a down market and we’re in the market for the long haul, we’re bound to make a profit long-term.
Additional Points to Ponder Regarding Your Investment Fears
1. The stock market will rise and fall. Accept the fact that investing in the stock market is unpredictable. It is what it is. Even if you’re a stock analyst, you can’t predict with perfect accuracy which stocks and funds will soar and which will tank.
2. A word to the wise. Ask yourself how you can apply Warren Buffet’s sage advice to your investment portfolio.
- Take your current situation into consideration: if you’re due to retire in 5 years, you might not have enough time to invest in aggressive growth stocks and experience growth. However, if you still have 15 or 20 more years of working and saving, Buffett’s logic might work for you.
3. Be vigilant about diversifying your stock portfolio. Diversification provides some built-in protection against suffering major losses in the stock market.
4. Avoid letting your fear run amuck. It’s best not to let your fear consume you to the degree that you’re withdrawing from opportunities to invest and reap benefits long-term.
Confronting and Handling Your Investment Fears
How can you minimize your investment fears? Try these strategies:
1. Recognize that fear is a normal human emotion. You’re bound to experience fear at some points in your life and in varying situations.
- Fear is healthy in the sense that if your gut is telling you something is scary, there may be a good reason for that fear. But if you can reason through the fear – in this case, your investment fear – you stand to experience healthy increases in your stock accounts.
2. Minimize your risks. Remind yourself that if you’ve diversified your investment portfolio as investment experts suggest, your chances of losing large amounts of money are greatly reduced.
3. Make wise investments in spite of your fear. Thoroughly research your investments and establish “Feel the fear and do it anyway” as your personal mantra. With judicious investments, your money will grow and this, in itself, may lessen your fears.
- Make one or two investments when prices are down, as long as you’ve got some years to watch your money build.
- As your profits grow, make a few more investments. Getting used to making investments puts this activity into your comfort zone, where it’s less scary.
Learning to confront and handle your investment fears are important aspects of your investment life. Gathering information from market experts, such as Warren Buffet, and examining your feelings about investing can make the difference between allowing your fear to consume you and moving through your fear to skillfully manage your portfolio.