Today’s post comes from Hendrik Brand. Hendrik blogs about personal finance and financial independence at Tigers on a Golden Leash.
When we invest, particularly in shares, we are usually driven by two fears: The fear of getting in at exactly the wrong time and the fear of missing out. After fighting these fears for months, you make the jump and invest some funds.
Then you start watching the funds like a hawk. If it goes up, you are ecstatic and when it drops, the family doesn’t get ice cream for weeks.
If Murphy and his laws have anything to do with it, the price will drop significantly the very next day. You started investing because you have a dream of a better future. The road to that dream is winding with a lot of emotional ups and downs.
If you are investing in long-term index funds or unit trusts, you can spare yourself all those emotions by simply investing every month without checking the returns four times a day. There are decisions you need to make continuously. However, overreacting by selling all your shares every two months, only to buy something else, isn’t part of the strategy. It’s easy to fall into this trap in today’s investment climate.
And here’s the key takeaway, the most important thing you need to know today: The market is not rational in the short-term. You are not going to cash out today, so the price at this exact moment is irrelevant. You may need to remind yourself of this from time to time.
Review and re-balance your portfolio every year. If you are using a financial planner, don’t skip the yearly meetings (yes, I know you’d rather watch that cooking show).
Make sure your portfolio is still aligned with where you are heading in life and ignore the doom-mongers telling you that the sky is falling – you don’t need that negativity in your life. The best investors aren’t the ones that claim to time the market perfectly, they’re the ones who do absolutely nothing when people are panicking.
Remember you can invest in your goals directly through the 22seven. Learn more about Goals here.