There are a lot of things to worry about right now. The markets, inflation, interest rates, and many other things complicate even the simplest financial decisions.
If you are worried about the stock market right now, there is a better way to invest.
When I say a better way to invest, I am not talking about a way to guarantee higher returns. It would be best if you did not get financial advice from anyone promising this.
A better way to invest is about having a plan for how you invest, which should help you stay invested for the long term. Part of this is preparing you for times when markets fall and when they go up.
This plan will not be the same for everyone. We all have different circumstances and are willing to take different amounts of risk. Everyone is different, but everything going on in the financial world presents us with similar problems.
So, what should my plan be?
First, answer the question, “Why are you investing?” A plan is not robust if it does not have a goal. If your goal is to stop working in 30 years, you might be able to take a lot of risk to maximise returns. The situation might be different if you were looking to retire in three years.
Working from this, consider how much of your portfolio should invest in the stock markets. If you decrease the amount you invest in equities, you may feel better when markets go down. However, you need to balance this against how you might feel about missing out on returns when markets go up.
Finally, focus on controlling the things that are in your control, like saving more and spending less.
What if I want to make a change?
If you are tempted to make a change, try focusing on the long term. Trying to time short-term moves is more like gambling than long-term investing. We must accept that whatever we invest in will fall in value regularly, and we should prepare for this rather than try to predict why and when. Currently, there is inflation, fear of a recession, a war in Ukraine, and increased volatility. We don’t know when this will end, and we also won’t know precisely what will cause the next shock or when it will occur. The only thing I can guarantee is that it will be a surprise. By the time it isn’t a surprise, it will be too late.
As a long-term investor, the good news is that you can capture market returns without needing to predict what will happen. When you can be a long-term investor and think in decades rather than years, you give yourself the best chance of achieving your goals. I know what is going on right now is challenging for many people. However, I have seen time and time again how having a plan can help.