Keep stock market worries in perspective as part of a sound portfolio approach

factors that affect investment decisions

Letting unnecessary stock market worries take hold of your investment decisions can lead to much bigger problems than just finding stocks to buy

Our early ancestors had to be on guard against threats in their environment. They were under constant threat. 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 lion or killed by an enemy. 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 will never happen. This includes stock market worries.

That’s especially true of investors, who generally think more about the future than other people. It’s true all the more of subscribers to our newsletters and members of my Inner Circle service.


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Understand stock market worries and risk so you can put everything in perspective

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

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

Learn what experienced investors do about common stock market worries

There is never a shortage of ways to ease your stock market worries. “You never go broke taking a profit,” is a favourite of brokers I’ve met over the years. They used them to spur their clients to do more trades, to boost their own commission income.

Our view now is that stocks are still a good place for your money, if you can afford to stay invested for several years. If you expect you will need to take money out of your portfolio, you should think about selling sooner than you need to.

Look beyond immediate stock market movements to help reduce your anxiety and stock market worries

Stock market trends are the general direction in which the stock market is heading. These market trends are dictated by a number of factors: what sector investors favour at the moment, economic and world news, interest rates and other trends from industries such as technology or resources, and so on. These trends could be positive or negative, and they could lead to a huge boom for a stock market. They could also lead to a big downturn.

It pays to keep in mind that the stock market anticipates changes, and no stock trend lasts forever. Stocks can go on lengthy downturns due to business and economic problems. However, the market typically starts to go back up long before the problems get solved.

We think that in general, long-term investors should be cautious optimists. Don’t let media sound bites and self-serving short-term predictions dictate your decisions when you’re investing in stocks.

Anxiety recedes with investment quality, diversification and portfolio 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 about high risk investments, and more of it to an investing strategy. Create a strategy that is 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.

Use our three-part Successful Investor approach to find higher-quality investments and build a top portfolio

  1. Invest mainly in well-established, dividend-paying companies, with a history of rising sales if not earnings and dividends.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities.
  3. Downplay or avoid stocks in the broker/media limelight.

What are your biggest worries with the stock market?

How confident are you that your investments will increase in value over time?

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