Are you feeling a bit exhausted by all the negative talk? The news is negative, the share market is currently negative, so it’s no surprise that many are feeling high levels of fear uncertainty and doubt (also known as FUD) right now.
Let’s look at 3 ways that may help you through:
Firstly, have an investment philosophy that is aligned to your goals and beliefs.
Markets will go up AND down, that is well known. But have you given consideration to how you are going to “feel” when markets go down? Loss aversion is a bias that almost all of us have. Humans tend to prefer to avoid losses more than they want to acquire gains. However we also suffer Fear of Missing Out (FOMO) so when markets are bubbling along (hello 2021) then everyone felt compelled to jump into the growth asset classes (property, shares even crypto) but now they are in reverse, the fear of loss is more than some can bear.
The key here is having an investment philosophy that you understand and can help to manage your behaviour when markets are at extremes. The Dalbar study* measures the effects of investors decisions to buy, hold and sell over short and long term timeframes. The results show that the average investor earns much less than the average index fund. Why? Because investors can be influenced by many factors (negative news, chasing last years’ winner, individual human bias’ and experiences and so much more) and so they may panic and sell at the wrong time. Having an investment philosophy that gives you structure to your investments and helps you manage your emotions can really assist.
As the famous Warren Buffet has said about investing “when everyone is excited, you should be scared and when everyone is scared, you should be excited” – harder to do than it sounds.
Think in numbers - perhaps not something that you will do every day, but to help manage uncertainty ask yourself to think in stats. As an example, how sure am I that the market could drop by another 20%? What decisions that I can make have the higher chance of success? What % do I know about the situation at hand that is factual?
By shifting your thinking from a need for certainty to trying to assess what you do know and don’t know, allows you to be less likely to react to your negative emotions and fall into the loop of despair.
It’s well known that when you are under stress you are less likely to make good decisions. I have always been a fan of writing a list – what are the pro’s and cons? Put it on paper and leave it for 24 hours then come back and see if you feel the same way tomorrow.
Staying well informed and doing your research (actual research, not listening to facebook or the news!) can help you move the uncertainty and push the doubt aside.
Get a burden buddy
A problem shared is a problem halved. By talking through your concerns with a trusted friend or adviser, you may find that many other people share your concerns and may have suggestions to help you manage and perhaps make better informed decisions.
Don’t forget we are available to help you.
Source: Dalbar https://blog.dalbar.com/qaib-glossary
General Advice Warning - This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial or tax adviser before making any investment decisions.