Conquering Your Financial Fears
A short guide to overcoming your worries.
An unusually helpful bit of pop psychology holds that we should worry only about things we can control or effect and put aside anxieties we cannot. That advice holds true for worrying about money and investing. Although some fears cannot be controlled by the individual or have little likelihood of happening, addressing a related fear that can be controlled may help alleviate some of the anxiety.
Fear: Stock Market Crash
While visions of the 2008 market crash still haunt some of us, the reality is, your biggest worry should be following your instinct instead of your logic. People often abandon the buy-low, sell-high principle when they need it most. Good markets make many investors feel invincible so they donít sell or rebalance. When markets decrease and prices are low, investors get scared that they will lose out on potential gains. They jump ship figuring a small return is better than none but ignoring the potential upside if the stock price rises again.
Diversification and dollar-cost averaging may help address some risks of market volatility and keep your investment plan on an even keel. Diversification is a strategy designed to reduce exposure to risk by spreading your investment dollars over a variety of asset classes. By making sure your portfolio is invested for the long haul across a variety of markets, countries and investment vehicles, you may reduce your risk exposure. Although diversification is designed to reduce risk, it does not guarantee greater returns nor protect against loss in a declining market.
Dollar-cost averaging simply means putting the same amount of money to work at regular intervals. For example, an individual might choose to invest $250 or more on the first of every month. Regardless of whether the investment is doing well or poorly, the person continues to invest $250 at the same time each month. The idea is to invest consistently and take advantage of market fluctuations. In effect, this method allows people to purchase some shares when the prices are low and some when share prices are high, and some when the price is in the middle. This technique can reduce the risk that a person will repeatedly purchase shares when the price is high by attempting to time the market. Purchasing shares only when the price begins to show growth may mean missing out on lower prices.
When choosing an investment strategy, it is important to remain focused on your goals and objectives. Dollar-cost averaging requires an individual to adhere to a disciplined approach of investing on a regular basis, even in a declining market. One also needs to consider their ability to continue to dollar-cost average through changing market cycles. Of course, this strategy does not ensure a profit or protect from a loss.
Fear: Identity Theft
Americans greatly fear identity theft and for good reason. It can wreck havoc on your personal finances. Mistakes on your credit report, however, are far more likely and can severely damage credit ratings.
One in five consumers identified an error in a credit report issued by a major agency according to 2013 study by The Federal Trade Commission. The study found that as many as 40 million people have a mistake listed on their credit report and 20 million have significant mistakes. Mistakes can range from minor to inaccurate or false delinquencies that can ruin your credit. Be cautious about giving out your Social Security number and check your credit report once a year for inaccuracies.
Fear: A Failing Economy
High energy prices, terrorism and natural disasters are all enough to make Chicken Little look rational. With our penchant to view the future as a continuation of the past, itís no surprise that many Americans fear another 1920s-style depression or worse.
By investing in a wide variety of investment vehicles, you can help increase the chances that if one major world economy starts to sputter, youíre gaining in another one that is booming. For those in retirement, where income distribution is so important, having a strategy that generates income in good times and bad is critical.
Many of us fear the worst on a consistent basis, and we all face risks every day. The real task is rooting out which financial fears can be controlled and then working with your financial professional to reduce your risk.
Mark Slattery Matt Peters
Securities offered through Securities America, Inc. member FINRA/SIPC, Mark Slattery and Matt Peters, Registered Representatives, Advisory services offered through Securities America Advisors, Inc. CaseSlattery and Securities America are separate companies.
Written by Securities America for distribution by Mark Slattery and Matt Peters