If the stock market has you on edge right now, you’re not alone. Fear is a natural reaction when your hard-earned money seems to vanish overnight. But emotional decisions often lead to costly investment mistakes. This guide gives you seven ways to stay grounded, protect your investments, and keep building wealth – especially during times of uncertainty.
Take a moment to pause before you act
When emotions run high, your ability to make rational decisions runs low. Emotions like fear and excitement trigger the primal part of your brain, which is designed to help you escape predators, not handle market volatility and manage investment portfolios. This part of your brain wants you to choose the fight or flight response, quickly. But remember that prudent investing is a long-term game and reacting emotionally or trying to time the market usually leads to bad decisions. A recent research report run by Morningstar shows that the average investor loses 20% or more of their potential fund returns by trying to time the markets.
What you can do:
- When you start to feel panicked before you do anything, step away for 10 minutes and breathe.
- Revisit your financial plan on your own or with a qualified financial professional you trust to determine if you are invested properly based on your goals, timeline and tolerance for risk.
- Then, if making a change is warranted, do so. Most of the time you’ll realize it is not needed.
Shut down catastrophic thinking
Many of us think, “This time it’s different.” Although the reason for the panic may be different, the fact that it’s temporary in the long-term scheme of things is not. In fact, in every sharp downturn from 1929 to 2020, many people thought the market would never recover, however the reality is that every time, it did.
What you can do:
- Monitor your thinking when it starts spiraling into “I’m going to lose everything.”
- Instead, remind yourself that although this does not feel good right now, historically the markets have always recovered.
- If you’re diversified, have sufficient emergency savings and are not retiring tomorrow, you have time.
Use mental accounting to your advantage
Mental accounting is your brain’s way of putting money into “buckets.” It typically works against us. But during a market drop, you can flip the script and have it work for you.
What you can do:
- Separate your portfolio in your mind by asking: How much of this do I need in the next 5–10 years?
- For example, if you have 3-6 months of expenses in an emergency savings account, and bonds, cash, or other stable/low-risk assets that you don’t need for 5+ years, consider those your stability buckets. Remember that the rest doesn’t need to be touched anytime soon.
Zoom out
Stop looking at your investments daily. Short-term market drops look and feel like you are on the edge of a cliff. If you zoom out, they look more like speed bumps on a decades-long uphill climb.
What you can do:
- If you’re investing for the long term (5+ years), you can afford to ride out downturns.
- If you need cash soon, you shouldn’t have that money in the market. Here’s a resource that can help you think through a prudent framework.
Find the opportunity
“In the midst of every crisis, lies great opportunity” Albert Einstein said.
What you can do:
- Re-evaluate your risk tolerance by taking an assessment like this or one offered through your current bank or broker. If a change is needed, try to address it when the market recovers so that you are not selling assets at a time when they are at their lowest.
- Consider using this time to rebalance your portfolio to realign but not panic sell.
- If you are worried about a loss of earned income, consider learning new skills, starting a side hustle, and increasing your savings.
- In general, focus on what you can control right now.
Take this “crisis” as an opportunity to learn, build your financial resilience, and become more intentional with your money. Remember that when asset prices go down, you have an opportunity to buy at a discount.
Think of your future self
Five years from now, the market will look different, and you’ll be thinking differently about it too. Note, as previously mentioned, that markets also tend to recover during this timeline.
What you can do:
- Imagine what your future self would say to you if you were to panic sell today versus stay the course.
- Make decisions now so that your future self will thank you.
Summing it all up
You are not powerless during a downturn. Often, the best thing you can do is breathe, zoom out and stick to your long-term game plan.
If you still need help, talk to a trusted financial professional. Your future self will thank you!
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