It seems as though the turbulent times are back for the stock market. After a great year in 2013, the stock market was relatively flat for most of January, and then all hell broke loose. The drop culminated with a 300 point decline on Friday the 24th.
As usual, the media was on the story. They talked about how much everyone lost in their 401k plans over the past few days and that it could get worse before it gets any better. While it is true it could get worse before it gets better, the news should stop promoting the fear and actually use this opportunity to teach a lesson.
They can point out the fact that after the great year in 2013, some investors are just taking some gains off of the table. Corrections, which are declines in the stock market of 10%, are common after a big run-up like we saw last year. Educate the public, don’t add to their fears.
Fear and Exuberance Are What Kills You
When it comes to investing, fear and exuberance, also known as emotions are what stop you from being successful in the stock market. When you act on emotion, you lose. This is true not only for investing, but for anything else in life. When was the last time you made a healthy eating choice when you were emotional? Not recently I would venture. After all, there is a reason why the term emotional eating exists.
When the stock market drops, or rises by a lot, tune out the media. Put the losses or gains into perspective. Over the short term, the market is going to be choppy. But over the long term, the trend is positive.
Turn the news channel or don’t read the section of the newspaper or magazine that talk about the doom and gloom. The more you can put your blinders on, the better off you will be.
When you are feeling nervous the most, pull out your investment plan and review it. You created that plan when you were thinking clearly about your future and the long term. Right now you are emotional and are only concerned with the short term. Re-focus on the long term. You are investing the way you are for a reason, to help you reach your dreams and goals. And when in doubt, automate your investing to take your emotions out of the equation.
No matter the hype the media tries to tie to the market, you need to see through their veiled attempt to get you emotional. Remember they try to get you emotionally involved for a reason: the more emotionally involved you are, the longer you are going to watch. The more people watch and for longer periods, the more they can charge advertisers. Thus, the more the station earns.
Focus on your long term goals and what you want out of life. Don’t get caught up in the day to day events that in the long run are insignificant. Chances are in 20 years, no one will remember the volatility the stock market saw in January of 2014.
Hi, my name is Jon and I run Penny Thots. I blog about many personal finance topics, but my specialties lie in investing, paying off debt, and achieving your financial goals. You can learn more about me on the Author Page.