Fear. The single largest obstacle that stands between us and investment success.
Intellectually, we understand all the logical rationale for 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.
Although understand intellectually, logic doesn’t seem to matter when we watch our portfolio decline in value as the market plunges. Our rational brain might say to hold on, but our stomach screams sell, Sell, SELL! We know all this, yet we keep repeating the same cycle of buying high and selling low.
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 relationship with family and friends, my intelligence, my faith in God, my persistence and resilience, or something else?
- What ten things am I most grateful for in my life?
Once you are finished, see if you feel a bit calmer and less likely to overreact to the next short-term market move.