Investor Toolkit: How to lower anxiety and improve your performance as an investor

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice, including how to develop the right investing strategy. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away.

Tip of the week: “The less you worry about things you can’t control, the better investor you’ll be.”

Of course investors worry; it’s not in human nature to avoid worrying altogether. But it pays to remember that most things we worry about never happen. As humans, we are bred to overreact to, dwell on or even brood over any hint of risk.

There are always investment-related worries to occupy our minds. Today, they range from the escalating war of words over the potential Iranian nuclear threat to the seemingly endless process of defusing the European debt crisis.

Why we’re patterned to overreact to unseen threats

For hundreds of thousands of years of prehistory, humans lived together in small tribes. As hunter-gatherers, they were steadily on the move. They were also under constant threat from predators and members of other tribes. At night, if you woke to every sound from the bushes, you lost some sleep, but you cut your risk of being eaten by a sabre-toothed tiger or killed by an enemy sneak attack.

If you possessed the ability to worry constantly about unseen threats, you were more likely to live till you reached puberty, so you could pass along your worrywart genes to the next generation.

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Investors may be more sensitive to risk than others

Today we face much less risk from animal predators and human marauders. But many people still carry this hair-trigger fear response. We spend more time than we should worrying about things that have very little chance of actually happening—or will work themselves out much less dramatically than some of the more strident commentators would have us believe.

That’s especially true of investors, who generally think more about the future than other people. It’s true all the more of tsinetwork.ca readers, as well as subscribers to our newsletters.

Many of you are the kind of people who seek out information from a variety of written sources, where it’s much more extensive and detailed than what you get from a glance at newspaper or Internet headlines, the evening news or commentaries on cable TV. However, some of that information is biased, overblown or incorrect.

This doesn’t mean you should ignore potential threats. You simply need to put them in perspective.

Anxiety recedes with investment quality, diversification and balance

You’ll find that many of your worries concern things that are unlikely to happen; that are already largely discounted in current stock prices; and that probably won’t matter as much as you feared they would.

You get a much better return on time spent if you devote less of it to worrying, and more of it to an investing strategy built upon analyzing the quality and diversification of your investments, and the structure and balance of your portfolio.

There’s another advantage as well. A calm investor is much less likely to react in haste and make sudden decisions that could prove to be damaging in the long run.

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