Recently, the news has been full of bleak stories about the economy. Inflation is at record highs, the housing market is crazy, stock values are dropping, and there’s no end in sight.
If you have wealth tied up in the stock market, reading these stories is frightening. Whether you’re fully retired or will be in the next few years, it’s hard to watch the market dip without worrying about how it will affect your finances. Even if you aren’t yet close to retiring, it’s still disheartening to see the value of your investments drop.
How should you respond? What does the market drop really mean for you and your investments? What should you do to protect your wealth? And how can you shield yourself from the emotional damage of every stock market news alert?
Here at Guiding Wealth, we understand the stress of watching the market dip. But we also know that it doesn’t have to be a frightening thing. Our clients aren’t panicking, because they know there’s a solid plan for their investments. A down market can appear scary, but it also presents some great opportunities if you know where to look.
Don’t Downplay Your Feelings
If you’re feeling stressed or anxious about the market, it’s important to recognize that your fears are valid. It is scary to watch the market dip, especially after all the instability of the last few years. We’ve all lived through recessions and experienced the consequences they bring.
If you’re nearing retirement, it can be especially alarming to see what the market is doing to your investments. And it can be frightening for people on the other end of the spectrum too. If you’re just starting to invest and don’t yet have a solid investment history, it’s easy to think that the market could make you lose everything.
Play the Long Game
While it’s certainly understandable to feel anxious about the direction the market is going, you don’t have to live in fear all the time. Investing in the stock market successfully is all about having the right perspective: a long-term one.
Unless you’re a day trader making your living off the stock market, you need to take a long-term approach to your investments. In the short term, the market goes up and down, but over a long period of time, the market generally goes up. That’s what makes it ideal for retirement investments. You don’t need to worry about each dip because you’re playing the long game.
Make Sure Your Risk Is Aligned Properly
Once you start to apply a long-term strategy to your investments, you can decide how to allocate your money in terms of risk. As a general rule, aggressive investment strategies are high risk/high reward. These types of investments look especially frightening right now, because all we’re seeing is the risk. But when the market bounces back up, these investments can yield excellent rewards.
But there are plenty of conservative strategies built around investments that offer moderate rewards and less risk. These investments might not make you an overnight millionaire, but they will grow slowly over time.
Build a Solid Investment Strategy
Ideally, your investment portfolio should have a variety of investments at different risk levels. Most experts recommend a more aggressive strategy when you’re younger and a conservative strategy as you approach retirement. When you work with a financial planner, they can help you build an investment strategy with the right allocation of risk.
The goal is to have a comprehensive financial plan that allows you to control what your money is doing. Without a plan, you just have to react to the market, which is stressful. A financial plan means you can tell your money what to do, not just watch it rise and fall.
What does a strong investment strategy look like? The exact details will depend on your unique needs, but in general, it’s wise to have some money in safe investments, like mutual funds and bonds. You can also have a portion of your investments in stocks, which usually offer more risk and reward.
Take Advantage of the Low Market
Finally, it’s important to understand that a market drop isn’t all bad; it also presents some unique opportunities. If you have some extra money to contribute to your retirement savings, now is a great time to invest. The market is low, so investing is more affordable right now. If you can put some extra funds into your investment portfolio, you can watch your wealth grow when the market goes back up.
With a Strong Financial Plan, You Don’t Need to Worry About the Market
Watching the market drop is scary, especially if you’re nearing retirement or just starting to invest. But with a solid, well-conceived financial plan, you don’t have to fear temporary market instability. An effective financial plan is designed for the long game. When you’re planning far ahead, you can stay calm even in a turbulent economy.
At Guiding Wealth, we understand what it’s like to watch the market and feel scared. But we also know that it’s possible to make it through these tough financial situations without sacrificing your retirement plans. We’ve created a free Retirement in a Recession guide to help you understand how the market impacts your investments and what to do about it.
If you aren’t sure whether your financial plan is sound, or if you don’t have one yet, we can help. Our expert advisors can explain how the market affects your retirement and help you build a comprehensive financial plan. To get in touch with a Certified Financial Planner™, call us at 214-810-3835 or schedule a consultation online.