During periods of market uncertainty and volatility, folks tend to make decisions that are detrimental to their ability to create long term wealth. Individual investors time and again underperform the market significantly. Investors are prone to emotional and often irrational biases that affect their ability to make solid decisions about money. Here are a few tips to keep in mind when investing:
- Avoid self-destructive investor behavior - Chasing the hot-performing investment category or making major tweaks to your long-term investment plan can sabotage your ability to build wealth. Instead, work closely with a knowledgeable investment advisor to outline your long-term goals, develop a plan to achieve them and set the expectation that you will stick with that plan when faced with difficult periods for the market.
- Know that crises are inevitable - Crises are painful and difficult to experience, but they are also an inevitable part of any long-term investor’s journey. Investors who bear this in mind may be less likely to react emotionally, more likely to stay the course, and be better positioned to benefit from the long-term growth potential of stocks.
- Don’t try to time the market - Investors who understand that timing the market is a loser’s game will be less prone to reacting to short-term extremes in the market and more likely to adhere to their long-term investment plan.
- Be patient - Though periods of short-term volatility for stocks are to be expected, it is crucial to bear in mind that historically stocks have rewarded patient, long-term investors.
- Don’t let emotions guide your investment decisions - Great investors throughout history have recognized the value of making decisions that may not feel good at the time but that will bear fruit over the long term–such as investing in areas of the market that investors are avoiding and avoiding areas of the market that investors are embracing.
- Recognize that short-term underperformance is inevitable - Almost all great investment managers go through periods of underperformance. Build this expectation into your hiring decisions and also remember it when contemplating a manager change.
- Disregard short-term forecasts and predictions - Don’t make decisions based on variables that are impossible to predict or control over the short term. Instead, focus your energy toward creating