2020 was a year to remember and a year to forget for many investors as the markets experienced extreme volatility. Investors saw the markets have their fastest 20% correction only to be followed by the fastest 20% rally. This extreme volatility caused pitfalls for many and opportunities for others. Fear and greed can get the best of most investors, and it’s important to keep emotions in check if you want to achieve long-term success in the markets. Here are a few tips to help control your emotions and become a better investor.
1. Have a long-term plan
Having a well-defined plan will not only help you achieve long-term success, but it will likely prevent you from letting your emotions drive your decision-making. Setting achievable goals will help keep you focused, which leads to better long-term results.
2. Ignore the headlines
The media can be investors’ worst enemy as they focus mainly on negative headlines, which can cause panic. The goal of the media is to drive viewership and advertising, so they should not be a source for investment advice. By the time the news reaches the headlines, it has likely already been priced into the markets. It’s best to ignore the media and focus on your long-term goals if you want to achieve success.
3. Avoid trying to time the market
Market timing is the notion that an investor can pick just the right time to buy and sell stocks to make a profit or avoid a loss. Marketing timing involves trading more frequently, possibly even within the same day. Short-term market movements tend to be erratic and highly unpredictable. Therefore, successfully timing markets to profit from short-term trades is very difficult to do consistently over long periods of time and often relies on speculation.
When the markets tank and volatility spikes, it’s important to focus on your long-term goals and remember why you are investing. If you are investing for retirement or other long-term goals, your best course of action is likely to be patient. Historically the average intra-year correction is around 14%, but in most cases those years saw positive returns for the year. Watching your portfolio decline can be scary and selling at the wrong times can be costly. Time in the markets wins in the long run, and it should be the main focus for long-term investors.
Working with a professional planner can be the difference between success and failure while planning for retirement. A professional planner can bring your closer to the future by helping with creating a personalized plan that will encompass both your short-term and long-term goals. Signet Financial Management has been working with retirees for over 30 years and we pride ourselves on helping clients have the retirement they deserve. Please contact us for a free retirement consultation.