After an 11-year bull run in stocks (the longest in market history), investors around the world were blindsided by the COVID-19 market selloff earlier this year — with global equities falling nearly 35% in a little over a month. Just when most people thought it was going to get worse, the market recovered almost as sharply as it fell, leaving the investors who jumped ship in the dust.
How to recession-proof your early retirement plan Members of the ‘FIRE’ movement, which stands for Financial Independence Retire Early, depend heavily on their investments, whether they’re retired already or working towards early retirement. Here’s how to prepare for down markets.
As the year has gone on, investors continue to watch the markets closely — wondering if the recovery will stick or if other uncertainties such as the election, resurgence of COVID-19, or something unknown, could knock their portfolio back down and hinder their chances of reaching their financial goals. Pessimistic voices from every angle — including the media, colleagues, friends, and family, only increase the already climbing anxiety.
This creates a vulnerable situation for investors, as our natural response to fear is to take action, which typically leads to “buying high, selling low,” the opposite of what we know to be best. While not intentionally harmful, these actions can be detrimental to an investor’s ability to achieve their financial goals. So, how can investors avoid making fear-based investing decisions and increase their chance of reaching their financial goals?
Plan first and stay focused on your goals
A few years ago, I had the privilege of playing golf a little differently than my normal experience. Lucky for me, my caddie was very talented, having “been on the bag” for Masters’ winner, Mark O’Meara back in the day. What transpired over the next 18 holes — thanks to him — was one of the best golfing rounds of my life. He made sure I had the right club and was focused on a target before I took a swing. With that as my last thought before swinging, I played with a newfound level of confidence. Staying focused on my target — and not the obstacles in my way or all of the things that could go wrong — freed me to trust my swing. Not shockingly, my results were better, and I enjoyed the round more than ever without the negative thoughts.
It is vitally important to establish goals first and then construct a portfolio to reach them. As my brilliant caddie knew, the right club is selected only once you know the target. Like obstacles on a golf course, there have been and always will be uncertainties that tempt us to take our eyes off the target and focus on the negative outcomes that could happen. However, the more you stay focused on your long term goals and trust the sound investment approach you’ve taken, rather than fixating on the risks, the less likely you will make investment choices that can harm your chance of success.
Not only that, but I think you’ll enjoy the round more, too.
Thomas O’Connor is a senior wealth adviser at financial advisory Keel Point.