Do you ever have trouble sleeping at night? Do you ever lie awake at night worrying about your investment portfolio?
For savers on the Road to Financial Independence, investment anxiety can make for a lot of restless nights. With so much of our net worth tied up in investments, large swings can create big changes in our net worth. Worries about the stock market can cause a lot of anxiety.
Today I’m going to discuss investment anxiety, and some easy methods for dealing with it…
Making Big Investments Without Anxiety
First off, let me say that I have to deal with anxiety just like anyone else.
I’ve dealt with just about every kind of anxiety you can think of: job anxiety, interview anxiety, test & performance anxiety, social anxiety, etc.
Investment anxiety is no different. That feeling of worry when things are out of my control still stems from the human flight-or-flight response and fear of loss. I still have those same instincts, but over the years I’ve learned to better control them.
If you read this blog with any regularity, you’ll know that I sometimes put very significant sums of money into just one stock. Right now, we have over 25% of our taxable net worth invested in just one business. How do I make investments like that and sleep well at night? Potentially YEARS of savings could be wiped out in one fell swoop! And yet I still sleep well at night…
How do I deal with it? My 6 Techniques For Dealing With Investment Anxiety:
1. Learn Patience
For me, knowing where my anxieties come from is half the battle. Patience is the other half.
The stock market (at times) seems frighteningly unstable. Some years are going to be positive and others are going to be negative, it’s just the nature of the beast. The market doesn’t always go ‘up’.
We’ve had 2 recessions in the last 16 years, so the bad memories are fresh in everyone’s minds. It’s enough to worry anybody!
You know what though? It’s surprisingly hard to lose money invested in the stock market, if you’re patient. Take a look at this histogram of returns:
71% of the last two hundred years have been positive years for the stock market. A mere 29% have been negative years.
What can this tell us?
When your investments are down for the year, don’t fret. Relax. Just be patient. Give it another year. Eventually the market will turn and prices will head in the other direction.
2. Take A Walk
Part of the problem with investing, is that Mr. Market is constantly shouting new pricing information at us. He’s on TV, the radio, and the internet shouting price offers at us. His constant offers to buy or sell fuel our anxiety.
My solution? Stop looking at your investments! Unless you have cash to invest, there’s no reason to look at daily price quotes. From a long-term investor’s perspective, daily quotes are just noise. So stop looking! Once a month should be plenty for anyone fully invested.
Instead of wasting all that time looking at Mr. Market’s prices, go outside and take a walk. Get some exercise. There’s only so many days left in your life. Do you want to spend them watching numbers on a screen?
Seriously, just go outside and take a walk. Breath some fresh air. Take in some nature. Think about something besides investing!
Fresh air and exercise does wonderful things for the brain and the body. It can go a long ways toward reducing any anxiety you might be feeling.
3. Avoid Stupid Selling Mistakes
Imagine for a moment that all your fears came true: The worst possible financial outcome happened. Every last penny you invested is suddenly worth nothing. Absolute zero. All your index funds, bonds, stocks, money markets… all of them are suddenly worth nothing. What would you do?
The kind of event that could cause this destruction is one of those ‘asteroid hits the earth‘ events. When it happens, we’re all in the same boat. Everyone is worth nothing. Money ceases to matter.
Of course, the odds of this happening are actually really really small. That scenario isn’t terribly realistic.
In fact, the worst realistic possible outcome is one that you have control over: Selling investments at the bottom of a recession.
Remember: You don’t actually lose any money until you sell.
Knowing this, I created a number of investing rules to keeping myself from making stupid investing mistakes like that — One such rule is that I only allow myself to purchase investments during a recession, not sell.
As long as I stick to my rules, I won’t do anything stupid. Knowing I’m not going to do something stupid certainly helps me sleep better at night.
4. Be An Owner Not A Trader
One of my main investment philosophies is to think like a long term business owner, not a trader. Trading is one of those situations where human judgement can screw up. Sometimes they screw up really badly.
One of my investment rules is to avoid trading. When I purchase investments, I intend to hold them for years, even decades.
If I end up buying near the top of the market, time is going to eventually be on my side (Remember patience?). I hold investments long enough that inflation and compounding eventually provide a good result….erasing most purchasing mistakes.
5. Knowledge Matters
One of the ways I reduce my investment anxiety level is by reducing uncertainty with knowledge.
When investing in individual stocks, I read everything there is to know about that given company: Annual reports, quarterly reports, news articles, industry journals, insider holdings, conference speeches, everything I can get my hands on. Sometimes I’ll even read annual and quarterly reports multiple times.
Why? Knowledge matters. I feel far less anxiety knowing in great detail how my businesses work. There are fewer unknowns.
When I know how an investment is going to respond to different business conditions, my anxiety level drops to practically nothing. The investment is no longer a mystery. Now it’s just a machine with inputs and outputs.
Even if you only invest using index funds, knowing exactly where your money goes still helps to calm anxiety . When there’s less mystery, you gain back some of the control you lost.
How well do you know your investments?
6. Realize There Are No “Safe” Investments
Life is impermanent and unpredictable. Most of us have been raised from childhood in safe, stable environments. But the world is anything but stable or safe.
When it comes to investments, the market can do practically anything on a daily basis. It could crash tomorrow, or it could skyrocket to new highs.
While no one has ever told me they’re afraid of making too much money, investors with anxiety focus on negative outcomes — like a market crash.
To avoid this risk, they take a number of different strategies:
The Mattress Strategy – Keeping a large amount of wealth in stored cash, or in a bank savings account. Returns are close to zero, or even below zero when inflation is factored in. It’s a bad idea to keep tons of cash sitting idle.
The Bond Strategy– Buying an excessive amount of bonds in order to avoid market risk is another strategy. This method is quite popular among retirees because they believe it supposedly removes the market risk and provides for a steady income. This kind of thinking isn’t completely correct though — bond prices can fluctuate significantly when interest rate change. There’s also the problem with returns — 10 year treasuries are only yielding 1.5%. You’re not likely to beat inflation like that.
The Gold Strategy – OK, it’s not just gold-bugs, any kind of “precious metal” investors fall into this category. This kind of person feels that money itself is a risk, and precious metals are the only way to survive the coming monetary collapse. They somehow even convince themselves that precious metals are an “investment” even though the metal doesn’t grow, compound, or earn any income.
None of these methods are going save you from risk. Realize that all investments have risk. All of them. It wouldn’t be an investment if there wasn’t risk! Without risk there is no reward.
Returns on ‘safe’ strategies are extremely small because risks are supposed to be smaller.
We’re told they’re safer, but they also suffer from the possibility of permanent capital loss — Cash and gold can be stolen, inflation destroys value, companies can go bankrupt, interest rates can change.
Are all those risks accounted for? It’s up too you to determine a risk/reward ratio you’re comfortable with.
That’s it! That’s how I keep my investment anxiety in check. Not too complicated is it?
I really hope you finds these methods helpful. Anxiety is a very personal condition, one that’s going to be different for everyone. These techniques work for me, but I understand they might not work for everyone.
I think a good night’s sleep is at least worth trying a few. Give some of these strategies a try. Let me know if any work for you!
How do you keep investment anxiety in check?
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