This post comes from Jon, who blogs over at PennyThots. There he talks about all things financial and tries to help readers improve their finances one day at a time.
We have never been in a period of more uncertainty. We just experienced an election where the result surprised most people. Had you told someone two years ago that Donald Trump would be President, they would have thought you were crazy.
But here we are. The uncertainty flows over to the stock market as well. You can read predictions every day about how the stock market is going to rally or how the greatest stock market crash ever is coming.
The only thing that is certain is that nothing is certain. When it comes to your money and the stock market specifically, how do you invest in uncertain times? What can you do to grow your wealth while protect it at the same time?
Unfortunately, you cannot do both. It is impossible to grow your wealth and protect it 100% of the time. But you can take steps to help you grow your wealth while at the same time keeping an eye on protecting it. You will still lose some money when the market falls, but you don’t have to be completely exposed.
In fact, there are a handful of options you have at your fingertips.
4 Tips to invest in uncertain times
#1. Take the long-term approach
This one is #1 for a reason. You have to have a long-term outlook when it comes to investing. This holds true whether or not we are in uncertain times or not. No one knows where the market is headed tomorrow or even next week. So trying to predict it is a waste of time.
With that said, however, we can, with some certainty, say that the market will be higher in the future. We just can’t say exactly how much higher or when this will be. But if you look at any chart of the stock market, you see that over the long term, the market rises.
So, you need to take a long-term view. I admit, this is easier said than done for many investors out there. How do you take a long term view? Here are a couple of tips:
- Ignore the noise. Turn off the TV. Stop listening to the infomercials on the radio. The more you ignore the doom and gloom, the better off you will be.
- Understand your emotions fail you. When you get scared, you naturally want to run. When you are scared investing, you want to sell. You need to be smart and not give into your emotions. We rarely ever make smart decisions when we are emotional.
If you can learn to tune out the noise and control your emotions, you have a greater chance of investing for the long term and not giving in to fear.
#2. Have a plan
When you go grocery shopping, do you take a list with you? If you do, then you most likely tend to stick to your budget and only buy the things that are on your list.
If you shop without a list, you probably buy a lot of stuff you don’t need and in some cases, won’t end up eating.
Investing is like grocery shopping. In order to stick to it long-term, you need to have a list. The only difference is we call this list your investment plan.
When you start out investing, you need to create a plan. In this plan, you note why you are investing, what you are investing in, and why you are investing in those securities. There are other things you include in your plan, but these are the basics.
The reason you create a plan is because we have bad long term memories. In 5 years, the market crashes and we wonder why we were invested the way we were. If we have a plan, we can refer back to it. This will help us to stay calm when the market is falling.
We know why we are investing and we know why we are investing in the securities we are currently in.
#3. Have a diversified portfolio based on your risk tolerance
Don’t model a portfolio off of how your dentist invests or from someone you read about online. You need to make sure your asset allocation is in tune with how risk adverse you are. No one has the same level of risk, the same fears, and worries you do. As such, your asset allocation needs to be unique to you.
Yes, you can take some tips and points from others, but at the end of the day, you need to be able to sleep at night knowing how you are invested in the stock market.
Take your time on this one and don’t just gloss over it. It will have a huge impact on whether or not you stick to a long-term view.
Trust me, it is much easier to stay invested for the long term when you have an asset allocation that you are comfortable with.
#4. Know that life happens
Life happens. Things change. As uncertain as times are now, they will never be certain. There will always be doubt or wonder as to how things will play out or where we go from here.
We as humans tend to look at the negatives in life. We think the worst even though the odds of the worst case scenario occurring are slim to none.
The sooner we can accept change and accept that the worst isn’t the most likely thing to happen, the better off we will be and the better off our investments will be. We will stop second guessing every move we make and instead allow the market to do its thing and grow our wealth over the long-term.
For example, many people fear that having Mr. Trump as the President means nuclear war is imminent. This is the worst case scenario and is highly unlikely. What is more likely is he will be just as good or bad a president as the rest. You just have to make sure you take a long-term view with your investments.
At the end of the day, you have to invest during uncertain times because there will always be uncertain times. We live our lives not knowing how the day is going to play out. But we don’t fear the worst. We believe we will come home from work and see our family and tuck our kids into bed.
We don’t assume we will get into a car accident or get injured at work.
As such, we have to invest not knowing what the stock market is going to do. We just have to learn to not fear the worst, that it will drop to zero and all of our money will be gone. We have to understand that on a day to day basis, the market might be up or it might be down. It might be up a lot or down a lot. But over the long term, there is a good probability that it will be higher than it is today.
If we can do this, then we can confidently grow our wealth and reach our financial dreams.
Jon, from PennyThots.com