How Should Investors Stop Themselves From Reacting To Short-Term Market Events?

February 13, 2013
Excerpt by Michelle Perry Higgins

Start Shopping for Long-Term-Care Insurance at 45Follow These Five Tips to Ease Emotional Investing:

This is the million dollar question. Another way to say it might be, “How do investors keep their emotions in check during chaotic times?” I’ll admit that I become emotional from time to time with my kids, my husband and when my 49ers lose the Super Bowl. However, emotion has no place when it comes to investing.

Here are five tips I recommend to keep you focused with your investments when it may be tough to keep emotions at bay:

1. Don’t be afraid to call your financial adviser if your nerves get worked up. Talk through your asset allocation, financial plan and current market events. There’s no such thing as a stupid question, so don’t be afraid to call.

2. Your asset allocation should align with your financial plan. If you are going to need cash within the next 7-10 years (i.e. income, home purchase, college funding or new vehicle) then those dollars should be out of the stock market. Irrational behavior can occur if you have money at risk that is needed in the short term.

3. If you tend to be a highly nervous investor, looking at your account daily or even weekly is probably not a good idea. You may want to consider viewing your investments a little less frequently.

4. Remember that corrections are sometimes healthy for the stock market. My clients always look at me cross-eyed when I say this, but it’s true. The point here is that there is not necessarily a need for panic when corrections occur. See this graphic.

5. You may want to use those corrective periods in the stock market as a buying opportunity. Put a smile on your face and be happy that you are buying shares at a cheaper price.