The market’s looking pretty scary these days, right? But honestly, it’s not the turbulence that will get you in trouble. It’s your emotional reaction to it.
Studies show that most investors, regardless of gender, tend to act on emotion, instead of rational thinking, when making financial decisions.
When markets take a tumble, our emotions, especially fear, take over, and we abandon ship, suffering losses.
The emotional reaction also happens in reverse. When the market is on a big run, there’s a tendency to take on too much risk and follow the herd, like so many did during the dot com and real estate booms.
May I suggest another way to view this volatility? Heed the advice of my favorite Wall Street Journal columnist, Jason Zweig: Be thankful that stocks are going down.
“Fear is the best fertilizer for future bull markets,” Zweig recently wrote “Market panics are the natural way overvalued assets come back into line, making future returns more attractive.”
If stocks only went up, Zweig explains, you wouldn’t make much money. “The short-term pain of loss is the price we pay for the potential for meaningful long-term gain.”
Besides, this is an awesome buying opportunity. As Zwieg points out, “If you have plenty of cash and the courage to withstand further declines, other people’s fear could be your cue to act.”
A line from an old Waylon Jennings song comes to mind—something you may want to remind yourself during market turbulence: “Storms never last, do they babe?”
Market volatility, like thunderstorms, won’t last forever. If you can ride out the passing squalls, you’ll be paving the way for long term prosperity. Now, that’s something to be grateful for!
I’d love to know how you’re viewing all this market volatility? Leave me a comment below.