Vadim Belyaev on Why Discipline and Perspective are So Important When Investing.
The financial side effects of the current global crisis add an additional level of stress that complicate every kind of money-related decision. All around the world, stock markets have responded to the pandemic by with sharp declines and marked instability. A diversified investment portfolio, varying in size, type, and class of investments, will provide some stability that will withstand the ups and downs of an uncertain market.
Most people make investments because they are enticed by the prospect of making money during a climbing stock market. But when the first signs of decline begin, and the lows seem lower than ever, many investors backtrack, opting for the safety of an immediate cash sellout or the stability of money market programs. It certainly isn’t fun to watch money and stock devalue, but investors who can keep their eye on the future, see the long term, will definitely profit. If stock market trends have taught us anything, it is that the strongest returns happen almost immediately after the sharpest decline.
So how does an investor achieve the right combination of restraint and positivity, a sense of proportion and control to stay the course? One of the best ways to strike the balance is by drafting and sticking to a plan. A thorough investment strategy — one devised with the input of professionals and with your long term goals in mind — is designed to sustain market fluctuations. It is also important to remember to stay as “uninvolved” as possible. Stop reading monthly statements and listening to endless chatter on investment sites. The loss that may be reported in financial statements is only a reality when stocks are sold; if the money stays in the market, it isn’t gone.
The truth is, that most of the discipline and perspective comes from an investor’s age and life stage. A younger investor, seeking to cultivate and grow their capital should seek market opportunities and utilize funds not immediately needed. Older and retired individuals need to think about their financial plans and where best to pull their monthly income from. Any income asset class should include a cushion of at least a few years to allow for market instability.
Everything about the current reality, from the health concerns to the financial anxieties, is overwhelming. But applying the right practices and setting the right mental framework can be beneficial both on the medical and monetary fronts. Overall, there isn’t much we can control about the virus, or the markets, but with the right plan in place and with the right frame of reference, both don’t have to be too scary. Even when everything is uncertain, it is possible to look toward the future with certainty and calm.