The fear of losing money in the markets has a significantly bigger effect on us than the feeling of gaining, when we make money. Our relationship with money is intricately entwined with our very fibre and resisting the emotion to withdraw, move or beat the markets is the most destructive emotion for any investor. The World’s most successful investors are never in it for the short term, they see long term value in companies and will ride the good times with the bad times for the end result, that being long term gains.
Invest for the long term
Investing is for the long term and financial advisors will tell you that the best thing you can do is to do nothing. Stay invested, the markets will recover. Look at the crashes since the second World War, in every situation, the markets recovered. The bottom line is that Markets always recover and if you are investing for the long term, resist the urge to try and time the markets. The chances of you being left worse off are extremely high.
Don’t be an emotional investor
By basing your investing decisions on what is happening today, is not an investment strategy. What you need is a long-term investment strategy that will deliver returns over a period of time greater than 5 years. History has shown time and time again that staying invested or even increasing your investment during a time like we are experiencing now with Corona Virus, will deliver real returns over time. History has shown us that investing for the short term is akin to gambling but if you invest for the long term (5 years or longer), your chances of losing money are Zero percent.
Massive shifts in the markets are often due to the responses by day traders and the ever-increasing number of private individuals gambling on the markets. Day traders have access to software that allows them to trade the markets and jump in and out a stock in milliseconds. The sheer number of inexperienced traders can move a stock which can then trigger massive selloffs. An investor is the one who trusts history and understands the test of time. Instead of pulling money out of the markets during a time like Corona virus, stay invested or increase your investments, the markets will recover, and you will gain.
Investment advisers will hammer on and on about “staying invested” to get long term gains and this is not just rhetoric. There are always winners and losers in good times and in bad times! Portfolio managers are highly educated in investment strategy and the markets in general. They are in a better position than you are to make a call on the markets. No-one, not even portfolio managers could have predicted the corona virus, it is their completely unemotional attention to the markets that allows them to select the winners in the bad times.
Portfolio managers will typically adjust portfolios after the initial shock in the markets. After considering the effect of the Corona Virus for example, portfolio managers may reduce exposure to credit, increase exposure to cash and the like. These adjustments are designed to take advantage of the markets moving forward and reduce risk to companies that may be severely affected.
Throughout history there have been disasters like World Wars, Pandemics like the Spanish Flu and Corona virus, Financial collapses like the dot com bubble and the subprime crisis. In each of these situations, the markets took a massive tumble in the short term and then recovered. Those that stayed invested reaped the rewards of resisting the urge to cash out, those that cashed out had to take the losses and were then faced with the decision of when to re-enter the market.
It is extremely difficult to remain unemotional in times like these, but rest assured that your money invested with a good fund management company or financial advisors, will return in the long term.