I’m stressed about following investment trends, but can I afford not to?
Like all money matters, investing can be a source of stress for many of us. It’s tempting to follow the latest investment trends, buy the hottest stock, compare our portfolio to our neighbour’s and worry whether we’re saving enough money. And, though there is no right or wrong way to invest, there are steps we can take to reduce our stress.
Step #1: Don’t try to time the market
Waiting for the top or bottom of the stock market can paralyze you with stress and leave you full of second guesses. Plus, if you’re going to be investing for the rest of your life, it will be hard (if not impossible) to consistently buy low and sell high over the decades.
In fact, a lot of people get caught up in following the day-to-day movements of the market and end up doing the exact opposite: They sell low when the market is falling because they’re stressed about potential losses and buy high when the market is climbing because they’re worried that they will miss gains. Plus, these simple tricks can help set yourself up for a better financial future.
Step #2: Average in
One way to take the stress out of deciding when to invest your money is to “average into” the market – that is, invest a certain amount regularly, like $500 every two weeks or once a month. In fact, most investment firms allow you to automate this process so that your predetermined amount comes out of your bank account with whatever frequency you choose. Doing this can help take away the worry and vigilance needed to try to time your investments.
Step #3: Use index funds
Not only does buying individual stocks require a lot of research but you also need to stay on top of all news related to the companies you invest in. Instead of putting in all this effort, you can invest in passive index funds (or index exchange-traded funds), which track the performance of the stock market (less what is often a very small management fee). While you won’t “beat” the market with this approach, you can be rest assured that your return will match the market. With that said, there are many investment products out there with the label “index” on them, so it’s a good idea to talk to an investment professional if you are unsure which one is best for you.
Step #4: Know your goals and risk tolerance
If you are 25 years old and four decades away from retirement, your investment portfolio can probably weather a large drop in the stock market. But if you are 65 and about to start withdrawing from your portfolio, you may not want the added worry of watching your portfolio fluctuate in value. To avoid this undue stress, it’s best to make sure that your investments match your goals and risk tolerance for your stage of life. This may mean reducing your exposure to the stock market and increasing your exposure to a fixed income. If you are unsure how to match your goals to your portfolio, you can speak with a financial planner or an investment professional to help you out. But first, here’s what you need to know before working with a financial advisor.
Jordan Campbell, CFA is a financial advisor.
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