Dealing With Investment Anxiety
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.
Conclusion
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?
[Image Credit: Flickr]
It is funny to watch as we sit in nearly the longest bull market of all time how anxious investors are. The major correction is coming, the election is going to cause chaos in the markets, Brexit is going to send European stocks to the dogs. A mere 2% dip has news feeds going crazy on our multiple phones. On and on it goes.
My point is that even in good times, investors manufacture their own anxieties when they can’t find real ones to worry about. Until someone goes through watching their portfolio drop 40-50% as we did in 2007-2009, many don’t have a clue what it means to be anxious based on REAL concerns.
Too true Mr. PIE! It’s a real “first world” problem!
Investment Anxiety? YES! Thanks for the Anxiety check, Mr. Tako, but you’re too friggin’ LATE to help me.
I pulled all my stock investment money out of the market yesterday (9/30/16). Thanks to the glacial speed of how it all works for us little investors I won’t be clean of the market until Monday – the cash, piles of it, will then sit in settlement account until I decide where it goes next. When do bits and bytes and puts and trades not travel at the speed of light? When it’s us little investors, and it continually makes me feel I need to be a little faster and a little more cautious.
Did it help me sleep? Well, it’s 4 in the morning and I’m here, so maybe not. And yeah, I already knew that it’s not the smartest play long term. Smart people like you (and even we cephalopods know) that this is not the path of the wise and stoic investor. On good days I know that TOO. Not today. My emotional side overran my mathematical side, or maybe it’s the vice versa. I just kept asking myself recently “Why be greedy?”
My investments are up about 5% in 2016, but flat since late July. Given the jittery economy, I just felt like the 5% was enough, and I’d sit out October and watch housing bubble 2.0 burble, watch the feds lie like it was 2007, watch all the old banking failures begin to loom again like the new junk derivatives that are essentially the same old credit swaps, and make investment decisions when the dust settles. I know, Warren Buffett I am not.
Now when exactly does that dust settle Mr. Tako? Are you going to tell me to take another walk? I’m TAKING my walk… away from Wall Street.
You heard it here first. A true victim of Investment Anxiety. Well maybe. If the market crashes then I am the smartest guy around… taking a walk – with my 5%.
Well, sorry I was a bit tardy on the post! We’ll see how things turn out!
“I only allow myself to purchase investments during a recession, not sell. ” What a great rule! Combined with patience, having a longer term owner mentality, and continuous learning, it’s sure to help curb my investment anxiety. I say help only because I don’t think my anxiety will completely disappear.
I agree there are no safe investments, but if you’re gearing up for a large purchase event during a recession, wouldn’t you want to sit a bit on the sidelines? A couple years of very low gains can be offset by buying significant discounts in the double digits. I like the buy only during a recession rule, but do you also have a rule that keeps your buying in check when things get too heated?
It’s hard to tell when things are too heated. At least with recessions, that’s a formal metric of economic decline.
In general, I try to spread out my buying over a longer period so I don’t buy all at one price.
Nicely done!
I still want to increase my bond allocation after reading this. My bonds help me sleep at night. I’ll give up some upside for quality z’s.
Yeah, a few bonds are fine…I’m talking about people that are 80%+ in bonds. I actually know some of these people!
It’s time in the market, not timing the market. Once you fully understand and believe it, the behavior piece is pretty simple.
I never want the markets to go down, but I would perhaps feel somewhat relieved to see another bear market before I retire. I don’t want to stop earning and investing at a market peak. But I have no control over that, so I sleep just fine.
Your comments are an interesting contrast to the other commenters!
Great tips! Knowing you are invested for the long haul and ignoring the short term news certainly makes investing less stressful.
Nice post. I tend to focus on disciplined investing over time which greatly reduces my anxiety. If you are buying a set amount each month then gyrations in the market have no effect on you. Also, I do use futures contracts to hedge in case the markets have a dramatic decline. This is something that is common sense but which most people don’t do.
Long term investment has also a lot to do with psychology. I think some of the biggest investment mistakes are made because of panicking (either panicking about losing your money or panicking about missing the winning opportunity).
There’s also a good physical exercise against market anxiety and it only takes 3 easy steps:
1) Put your right hand on the seat of your chair
2) Put your left hand on it as well
3) Sit
This perfectly avoids selling your assets during times of panic 🙂
I wanted to type an answer to thank you for this powerful advice but then realized my hands wouldn’t move! How do I get out of this situation? Help!
Volatility gets such a bad rap. So many times it works in investors’ favor, if they ignore everything and just do what they planned. I think your focus on patience is key.
So true ZJ, so true! When you buy cans of soup your entire life, you want them to be on sale every once in awhile to stock up. Same thing for investments!