In the unpredictable world of investing, the “fear curve” is an all-too-familiar emotional roller coaster that leads many investors to make decisions that ultimately harm their financial health. This curve drives people to buy at market peaks and sell at troughs, missing out on potentially lucrative opportunities. As advisors, we’re here to guide you through mastering the fear curve, shielding you from significant losses and positioning you for gains, even in uncertain markets.
Let’s explore five foundational rules to help you make more rational decisions and avoid the emotional roller coaster of investing.
1. Diversify your assets
Diversification is the cornerstone of both building and preserving wealth. It not only aims to enhance returns but also significantly reduces risk. Research consistently shows that asset allocation is responsible for over 90% of your investment returns. Our investment team can help you build a diversified strategy that suits your financial plan.
2. Tune out short-term forecasts
The market’s short-term movements are largely unpredictable. Despite the plethora of forecasts, even experts miss the mark. For most investors, especially those not engaged in day trading, daily market volatility should be a non-issue. Focus instead on the broader economic and financial landscape, ignoring the daily noise that can lead to hasty decisions.
3. Have a risk-management plan
Protecting your current assets is a prerequisite for wealth generation. A sound risk-management strategy involves careful position sizing, which limits the size of any single investment within your portfolio.
At Credent, one of our investing pillars is to manage risk for our clients, so we strategically implement risk management tactics, such as structured notes, to maintain more stable portfolios.
4. Use systematic investing
Regular, disciplined investing — known as systematic investing — can significantly impact your financial growth over time. You can facilitate systematic investing through automatic direct deposits into investment accounts, participating in employer-sponsored retirement plans, and opting for dividend reinvestment programs where applicable. This strategy helps in building wealth steadily, leveraging the power of compounding.
5. Create a plan and stick to it
After establishing an investment plan, it’s crucial to adhere to it, barring annual adjustments or necessary rebalancing. Constantly shifting strategies in reaction to market volatility is a common pitfall that leads to emotional investing. By committing to a well-thought-out plan, you safeguard against the whims of market sentiment and position yourself for long-term success.
You can also trust your investments to a team of objective experts who know how to tweak portfolios amidst uncertain markets without the consequences an emotional investor might create.
Stay invested in uncertain markets
By following these rules, investors can protect themselves against risks and capitalize on opportunities. Overcoming the fear curve is not about eliminating emotions but managing them effectively to make informed, rational investment decisions. In investing, discipline and patience are virtues that often lead to prosperity.
To feel more secure in uncertain markets, reach out to an advisor using the form below.
Want to read more like this? Review “5 Principles Most Good Investors Know”
Adapted from: “How to Combat Emotional Investing: Mastering the Fear Curve.” FMeX. 2024. https://abm.emaplan.com/ABM/MediaServe/MediaLink?token=1bbde45d9e1a4543a6deba464fa9e468