We can safely assume that the feisty Brit who coined the phrase “keep calm and carry on” didn’t have any coin in the U.S. stock market. Think about it: On Wall Street’s scary-go-round of irrational exuberance and nail-biting anxiety, the words “keep calm” rarely if ever apply for more than a few days at a time. Or hours at a time.
So what’s a nervous investor to do as they sit on the sidelines and contemplate a ride? Those bulls and bears don’t bite, do they? Depends on how you look at it. “Behavioral finance tells us that during periods such as these, investors will become fearful — as fear is a very powerful emotion driving investor behavior,” says Kevin Jacques, a former U.S. Treasury economist and Boynton D. Murch Chair in Finance at Baldwin Wallace University in Berea, Ohio. “Investors get into trouble when they act not as part of their plan, but rather react to the emotion of the moment regarding what’s happening in the market.”
How does one manage marked nerves during market swerves and play it cool? Here investment experts weigh in on eight ways to face fears and get going on your financial trek. Keep calm, and read on.
Get cooking with some solid self-education. Investing can be daunting, but as book smarts go, you have to turn the page sometime. Or, make that cookbook smarts, with creme d’investment the recipe. “We need to remove the perception that investing is different than most other areas in our life,” says Meghann McKenna, owner and financial adviser at McKenna Financial in Bozeman, Montana. “If we never cook and never pay attention to food, how can we expect to just dive into preparing a dinner party for eight?”
Face it: Risk is a fact of investing life. How is it that some thrill junkies who bungee jump and skydive can’t take the same attitude toward a market plunge? Maybe it’s the money at stake. “Investors are risk-averse — always have been, and always will be,” says Joe Halpern, CEO of Exceed Investments. “Understanding that risk is a vital component of investing, and the only way to generate reward, is a great first step. We have the technology and products today to better fit the varying needs of investors.”
Make it proactive and personal. Sketch out the start of a blueprint to move from vagueness to clarity — and get feedback. “Being proactively intentional can reduce nervousness because you can set a plan around all that is within your control,” says Michael Liersch, head of behavioral finance and goals-based consulting for Merrill Lynch Wealth Management. “Articulate goals, align a strategy toward those goals and make ongoing course corrections as market, life and financial events occur. Doing this in collaboration with another human being can bring a surprising level of peace of mind.”
Know the flavors of fear. Investors tend to lump all fears into one big Thing That Ate My Portfolio. But in reality, you can peel away different stripes of this beast. “The most common behavioral biases we encounter when advising clients are recency bias, loss aversion and the illusion of control,” says Peter Mladina, director of portfolio research for wealth management at Chicago-based Northern Trust. “They are latent in the human psyche but when investors are aware of these biases, they can mitigate them.”
Really: Bad is often good. Down markets do turn upward, even in the worst of times — you just have to wait them out and guard against chucking all your proverbial eggs in a single stock basket. “Our research finds that it has paid to stay invested in U.S. stocks during times of economic uncertainty,” says John Sweeney, executive vice president of retirement and investing strategies at Fidelity Investments. “The best five-year return in the U.S. stock market began in May 1932, in the midst of the Great Depression. The recession of July 1982 and March 2009 also yielded significant five-year returns.”
People first, profits next. Anxious investors will find a calm space simply by looking at how a company interacts with clients and consumers. “If you invest in a quality business with good margins and loyal customers, then you shouldn’t feel anxious because you’ve followed a trusted process,” says Vincent Bradley, CEO and co-founder of FlashFunders, an equity crowdfunding platform. “If you choose to invest in a business because of their financial performance instead of the people, it’s likely that you’ll be more nervous.”
Stop consulting Dr. Google. It’s a great investment in and of itself, but doing a Google search can confuse neophytes and long-term investors alike faster than you can say “research engine.” “Today’s investors of all ages have become more interconnected from tools like Google search to a plethora of news and financial sites with gobbledygook financial predictions and forecasts,” says Jon Ulin, managing principal of Ulin & Co. Wealth Management, based in Boca Raton, Florida. “This investor problem is no different than sick people looking up an ailment online, not seeking professional help and making their own incorrect assumptions and diagnosis.”
Don’t look back. You can’t drive looking in the rear-view mirror all the time, yet that’s exactly what too many rattled investors do. “The post-financial crisis world increased the amount of suspicion and cynicism in the minds of retail investors, and recent events have only made these fears more acute,” says John Ocwieja, a personal and business financial specialist with Hoopis Group, Chicago, a MassMutual agency. “But the fears are always the same: No one wants to lose money, no one wants to waste time, no one wants to feel exploited, no one wants to wake up in the future regretting a choice made in the past — and no one wants to look stupid.”
Want to look smart? “Managing anxiety begins with starting with the end in mind,” Ocwieja notes. “After all without a map, any road will get one anywhere.”
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8 Tips for the Anxious Investor originally appeared on usnews.com
