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Techniques to Manage Your Emotions to Become a Better Long Term Investor

Techniques to Manage Your Emotions to Become a Better Long Term Investor

January 07, 2022

Do you find investing emotionally difficult particularly when the stock markets are dropping? Have you just wanted to move all your money to cash in the bank when you look at your investment statement and your account is down thousands of dollars or tens of thousands of dollars? If you answered yes, you are not alone. In fact, you are normal.

What do you do? Do we just put all our money in “safe” non-volatile investments that never go down like cash, savings, money-market, CD’s, and fixed annuities. Although, all these things have their place and we need to have cash (we will not talk about why here). They are terrible long-term investments. They make us feel good because they have no volatility but they do not keep up with inflation and their purchasing power erodes over time.

The reality the best long-term way to keep up with purchasing power is to invest in the best companies in the US and world in the form of stock. Stocks are better than commodities like gold and silver and even real estate over the long-term. We need an element in our portfolio particularly if we are going to be retired for 20 to 30 year period where the cost of living is most liking going to double and we need to draw passive income from our portfolio.

What is an investor to do? Here are several things you can do:

 (1) Meditate or have some kind of breathing or stress practice - Great Adam you say!! I was not expecting some woo woo answer. As many of you know I come from a scientific and engineering background. I am a research and numbers guy at my heart. As a person who studies successful investors and what they do and mindset, I found that some of the top investors kept saying meditation was one of the key reasons for their success.

As I started doing this 7 or 8 years ago, it transformed my life in a lot of ways. Now, I feel a lot less stress and anxiety not only when it comes to investing but other facets in my life. There is so much neuroscience behind it and it works to rewire a lot of your neural circuits. Breathing is a central part of it. In the future, I will talk more about this because we want to help you with peak performance and optimize the joy in your life. By the way, Buddhist monks who meditate regularly are often found to be some of the happiest people.

(2) Know that Ups and Downs are Normal and Surrender to It - I like to use a lot of weather analogies since we all experience the weather. Living where we live rain and snow storms are normal. We may not like them when they occur but we need them. If we had no rain or snow, we would be living in the desert with no trees, grass, or flowers. Reality is that without negative volatility where we have corrections where the stock market drops 10% or more or bear markets where the market is down 20, 30, 40, or even 50%, we would not have the rates of return that stocks generate.

 We should expect annually at some point the stock market will drop 15% or more and every five years have a drop of 30% or more. Sometimes just knowing that things are normal is helpful. For us we subscribe to the bucket approach where money you need in the now and soon which we say within next one to 10 years should have very little or no stocks. The money you have in stocks generally should be earmarked for needs 10 years and beyond so you can ride the volatility.

 (3) Be Careful in the Media You Consume and a Mindset of Catastrophe - What is the purpose of the regular news and financial news? Is it to inform you to make good decisions as a citizen and investor. We all would like to believe this and for those in it, a large portion nobly believe in what they are doing. However, for me, there is the pragmatic side. They are a businesses that sell advertising. There are numerous studies that show the more fear and pandemonium, the more viewership and eyeballs. I think of the song by Don Henley of the Eagles, “Dirty Laundry”.

Media knows that when we are emotionally charged, we consume more media. However, watching this does not necessarily help us as an investor. No doubt there are a lot of big issues out there in politics, global challenges, inflation, Covid, deficits, and debt. The challenge as an investor is it is hard to set long-term goals based on a lot of things we do not know when and how they will impact. Going back to what you are investing in when you are buying stocks, you are investing in the best run companies in US and world who have a lot of smart people who think of these issues and adapting to keep their companies still generating revenues and profits. Ultimately what drives the markets long-term is earnings. Looking back over any period 20 years, 30, 60. We have seen the data and the increase in the market is very positively correlated with earnings of the best companies.

Investing can be hard. Hopefully these perspectives can help us better manage our emotions. We at Harford Financial Group believe in our role as holistic financial and retirement income planners. We are a guide for our clients to help them through their investment journey. We are like Obi Wan and Yoda guiding Luke, Han, and Leia through the dangers of investing so that we can reach our mission, living a life of meaning and purpose. We can be financially set so we can take care of our loved ones and do awesome things with them!!!