After a couple of tough weeks for the market, the level of fear seems to be at a pinnacle. While fear is not always a bad thing, when it comes to investment decisions, fear is not a factor we want creeping into to our thought process. Many people have said that fear and greed drive the market. We can certainly see how fear has firmly taken its place in the driver’s seat.
If you find yourself panicking during our latest doomsday event, here are a few things that you can do protect yourself from falling prey to the darkside of fear.
- Remove the Noise –Turn off all the talking heads on the television. The more time you spend in front of the TV the more fear will creep into your thoughts. If it bleeds, it leads! So, if you want to improve your wellbeing, try taking a news hiatus!
- Control What you Can Control- We can’t control the market, but what we can control will have a large impact on our financial future. By managing taxes, controlling spending, and controlling savings, you will have a greater impact on your future than what the market does in the next week.
- Be a Buyer – Equities (stocks) are on sale! Continue to buy into the market, especially if you dollar cost average. By buying incrementally and regularly (as with a 401k or 403b), you will reduce volatility of your portfolio.
- Take Advantage of the Tax Code – Harvest capital losses. It’s important to make wise tax decisions during market downturns. Taxes are usually our single largest expenses, so we need to manage our taxes, and harvesting tax losses is a great way to use an advantage the tax code gives us.
- Review Reality – Take an inventory of your life. Does the recent downward move really impact your day to day activities? The sun will still come up tomorrow. Try to stay on the sunny side of the street!
- Don’t Overreact – Don’t run for the hills and sell all of your holdings. Selling positions in stocks and mutual funds will require a second act: buying back into the market. Unless you can properly time the reentry to the market, you will fall short. At the time of this writing (8/9/2011) the market is up roughly 4% on the day. Being out of the market means missing a 4% upturn!
- Talk with Your Advisor – If you don’t have a fee-only advisor, now’s a great time to get started. Working with a fee-only advisor will give you the opportunity to communicate with someone who is looking out for your best interest. It’s great to have someone to talk to when things get shaky. If you are looking for an advisor, check out these two sites: ACA Planners NAPFA
Sure, the recent market moves hurt and impact us all, but I also feel that a good bit of the pain is self induced by over reactionary fear. It’s important to keep things in perspective, which is why it’s important to work with a fee-only advisor. We need to continue to control the things we can control and get away from the television and enjoy our lives doing the things that matter…..spending time with those we care about!