I am in the fear business, and I can tell you from an insider’s vantage point how to overcome your fear.
I used to work in the investment industry. I became a financial planner and started working with clients. You know, working with people who want to invest to achieve their long term goals. Yes. That used to be my job, and even though I haven’t left my firm, I find that I am now in a completely different industry. The industry of fear.
A lot of folks have forgotten all about investing. Instead, they are operating completely out of fear. Fear of losing money. And fear of not being in the market when it turns around. It’s all about the fear – either way. Of course the mutual investment companies love it. They prefer you worry rather than look at your mutual fund holdings and weigh investment performance.
This is not only lamentable, it is also completely avoidable. That doesn’t mean there isn’t anything to be afraid of. There certainly is. Depending on what day you look it, the market has dropped by half. That’s as bad as the losses of 1973-1974 (48%) and the 2000-2002 losses (49%).
Far more agitating has been the daily movement of the market. In the 50-day period ending November 21, 2008, there were 50 trading days. And 25 of those 50 days saw moves of 4% or greater. Just to give you some perspective, in the previous 25 years, there were just 25 daily moves of more than 4%. No wonder everyone is frightened. It’s scary as heck out there.
Last week, the market soared 17%, which is amazing. Then on Monday, the market plummeted by 9%. It’s hard to make heads or tails of what is going on.
So here’s how to overcome your fear of money.
My advice is simple: stop trying.
There is no objective reason for this kind of craziness. But there is an emotional reason for it: fear.
Don’t expect to learn anything about our economy by watching the market right now. You’ll be able to soon, but you really can’t draw any conclusions with this insanity. Eventually, and soon I think, the market will settle down. It will once again be the predictor of our economy. That’s great, but don’t expect it to turn around slowly. Odds are that the market will turn around before any of us really understand what is happening. That’s why you can’t time the market.
The best approach right now is to remain objective rather than emotional. If you loved the market when it was trading at 14,000 – how can you hate it now at 8,500?
Whatever you do, do not react emotionally. We’ve gone down this road before. And this road, like all others, has an end to it. Be patient.