Fear is the single largest obstacle that stands between us and investment success. Intellectually, we understand all the logic behind creating and maintaining a diversified portfolio, sticking with stocks for the long run, investing money on a regular basis, and not getting swayed by short-term market swings. But all that logic seems to go out the window when we watch our portfolio decline in value as the market plunges. Our brain might say to hold on, but our stomach screams SELL, SELL, SELL.
The antidote to fear is not logic. Strong emotional reactions need strong emotional medicine. The next time you feel that pit in your stomach as the market drops precipitously, try asking yourself the following questions:
- Can I predict the future? (Hint: The answer is always no.)
- What do I rely on as I face an uncertain future? Is it my close relationships with family and friends, my intelligence, my faith in God, my resilience, or something else?
- What ten things am I most grateful for in my life?
When you finish answering these questions, see if you feel a bit calmer. My bet is that you will, and you’ll be less likely to overreact to a short-term market move.