Ask Stacy: Should I sell my stocks now?
Here are seven tips to get over the fear of investing. Added bonus: These tips will also work for any other fear in your life as well.
This post comes from Stacy Johnson at partner site Money Talks News.
This week's reader question is about fear -- namely, the natural fear that arises whenever we place our hard-earned money into investments that can temporarily or permanently go down in value. Here's the question:
My stocks are tanking along with most everybody else's, I presume. Talk me out of selling them now. Thanks. -- Carlos
Carlos sent this question a few weeks back when the overall stock market was down for the year, and pundits were blanketing the airwaves with dire warnings of a market collapse.
As I write this, the market has recovered most of its losses, but his question is still pertinent, because it highlights the inherent fear we all confront when investing in anything other than an insured bank account.
Here's the deal, Carlos. It's healthy, and understandable, to become concerned when the market gets scary. But running scared is exactly how people buy at tops and sell at bottoms. So let's talk about overcoming the natural fear that accompanies investing, as well as other things in life.
Tips to overcome fear
From buying a house to skydiving to asking someone out for a date, fear is not your friend. Here are seven universal principles that will help you keep it to a minimum.
1. Understand what you're doing
Before asking someone out on a date, if you're scared, you'll probably ask a more experienced friend for advice. To increase your odds of success, you might also try to learn what you can about the object of your desire. What do they like to do? Are they already with someone? What kind of relationships have they had in the past?
If you're going to invest in stocks, invest your time before investing a dime. Talk to someone you know with more experience. Learn what makes markets, and stocks, move up and down. Studying history will help you understand and predict the future.
So will understanding the rules of the game. And one rule of this game is that stocks will go down as well as up.
Here's a rule that applies to everything from investing to mountain climbing: There's an inverse relationship between knowledge and fear. The more you know, the less afraid you'll be.
2. Understand why you're doing it
With conviction comes courage.
When it comes to seeking out members of the opposite sex, you'll be most effective when you're convinced a great relationship is in the offing.
When it comes to investing, you'll be most effective when you accept that investing in the shares of great American companies has historically been a smart thing to do. And investing when others are running for the hills has proven smarter still. (For proof, look at the stocks I bought five years ago when the market looked exceedingly scary.)
You know the stock market offers more risk than insured bank accounts, so it follows that if it didn't return more over time, it wouldn't exist.
I'm convinced a part of my savings belongs in stocks, even though I'm well aware of the risks involved.
3. Don't overdo it
If you want to reinforce your fear of rejection, ask Halle Berry out for a date.
If you want to scare yourself to death when making investments, invest money you'll soon need, invest more than makes you comfortable, or put your money in silly, speculative stocks that are more gambling than investing.
Staring at the ceiling at night? This is probably why.
4. Expect some pain
It would be great if every relationship went flawlessly from beginning to end. But we know that's not the way it goes. Relationships, like the stock market, have their ups and downs.
Fortunately, the potential upside of great relationships, and bull markets, outweighs the potential downside of bad relationships and bear markets. That's what keeps us in the game.
I've got a significant proportion of my net worth in stocks, so I know how it feels when things go south. I've also been divorced twice. But the decades I've spent as a husband and an investor have taught me to expect the bad with the good.
If it was all wine and roses, anybody could do it.
5. Listen only to your voice, not anyone else's
If you've ever been set up on a blind date through a friend, you know that even those with the best intentions may not produce desired results.
When it comes to both investments and relationships, develop your own voice and listen to it. If you like blondes, date blondes. If you like large cap companies with an expanding presence in emerging markets, buy them.
People trying to steer you in one direction or the other probably don't know you as well as they think they do. They may also have personal agendas that don't align with yours.
6. Consider the risk of not taking risk
After my last divorce, I swore I'd never get married again. Twice bitten, thrice shy.
But over time I came to realize that rather than letting the fear of failure control my life, I could choose to learn from my past mistakes and find a better relationship and a happier life. And so I got married again.
So far, so good.
Over the 30-plus years I've been investing in stocks, when market crashes and recessions hit, I mostly stood on the sidelines, too afraid to invest.
This past recession, I learned from my mistakes and invested a huge chunk of my savings into quality stocks. I also bought a rental house.
So far, so good. As I write this, those two decisions have increased my net worth by about $200,000.
While there's always a risk of losing money by investing in stocks, real estate or anything else that changes in value, there's a greater risk in not doing so. You're unlikely to retire rich, or even adequately funded, if you earn an average income and are willing to invest only in guaranteed rates of return.
In short, be it love or money, you won't get a hit from the dugout.
7. Think long term
If you're going to invest only in short-term relationships, it's unlikely you'll end up emotionally satisfied.
If you're trying to invest short term, you might as well head to Vegas where you can at least drink free.
When I bought General Electric for less than $10 a share in 2009, I didn't expect it to go up right away. But since it's one of the biggest companies on the planet, I knew it wouldn't go bankrupt, and I assumed that sometime before I died it would come back. In fact, had the market continued to tank and GE continued to fall with it, I was prepared to buy more.
Whether it's a soul mate or a stock, if you choose quality and exercise patience, it will almost certainly pay off.
Live like you're going to die tomorrow, but invest like you're going to live forever.
Bottom line: What I say doesn't matter
Carlos started this post by saying, "My stocks are tanking … . Talk me out of selling them now."
Not my job, Carlos. You may have crappy stocks, in which case you should sell them now. But if you've invested properly and a 5 percent market correction has you on the ropes, my advice is either to get out of stocks entirely or use the tips above and man up.
More on Money Talks News:
Figure out your investment risk tolerance,
Take an on line quiz or two. Get an recommended advisor.
Align investments within those parameters.
The market will go up some days/ the market goes down some days,
but over time, it goes up. Plan to make it work for you.
You cant expect to hit a home run every time. Doubles are good too.
Stay your course, and let someone else try time the market 100% of the time.
Sleep easy tonight, and every night.
Enjoy the long range rewards.
And don't listen to commenters of financial aritcles on non financial "news" sites like MSN. Read them for a good laugh but keep in mind that everyone on here is a broke idiot.
The foocking Batch should be fired and her pension taken away.
Your 5th Amendment rights do not include the right to refuse to answer questions put to you by your employers (congress/citizens). You can not refuse to answer our questions and expect to keep your job. If you do not answer our questions you should be fired with no benefits, no severance and no pension. Everything in your workspace should be confiscated until an investigation can be completed. Your choice, answer the questions or exercise your right and be fired.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Shopping at Costco saves money, even after paying the $55 membership fee, but comes at the price of buying in bulk and limited selection.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'