Investing is Emotional and Scary
Investing can be a daunting and emotional journey. Reflecting on the last four years of my own investment experience, I realised just how much of an emotional rollercoaster it has been.
In 2021, as the world settled into a new routine of living with COVID-19, the investment markets soared. Once it became clear that the world was not ending and that global government stimulus would drive up asset prices, the markets reached all-time highs. I felt proud of my pre-COVID investments, which were thriving. I even started imagining how wonderful it would be if the markets continued on this trajectory.
Then came January 2022. Headlines began warning of possible hyperinflation and the looming threat of war in Ukraine, which materialised in February. The euphoria of 2021 quickly gave way to doom and gloom. Over the next ten months, the focus was on the Federal Reserve repeatedly raising interest rates and the ongoing war exacerbating global uncertainty. By the end of the year, the MSCI World Index had plummeted nearly 20%.
My investments suffered significant losses, and my mortgage costs rose sharply. Initially, I was hopeful, seeing an opportunity to invest at lower valuations. However, as the year wore on, hope turned to dismay as the uncertainty of the downturn’s duration triggered anxiety and worry.
As we entered 2023, the news remained largely negative. The unexpected failures of Silicon Valley Bank, Silvergate Bank, and Signature Bank in March caused another wave of fear. However, the narrative shifted in the final quarter of the year when the Federal Reserve announced confidence in inflation control and initiated rate cuts.
While this was positive news, I felt emotionally drained from the preceding months. By the end of 2023, the markets had rebounded by about 20%, recovering the losses of the previous year.
As I write this article in November 2024, the markets have continued to climb. The exceptional growth of big tech dominated headlines early in the year, and two more rate cuts signalled growing confidence in inflation control. The U.S. elections added excitement—and distractions—to the mix. Markets are up roughly 15%, and optimism is palpable.
Despite this positivity, I still find myself seeking out negative headlines, unable to fully shake my concerns.
Here are some examples of the headlines that affect me:
Dear Reader,
I share this journey to illustrate that even as a wealth adviser and planner, I am not immune to the fears and thrills of investing. I am also acutely aware of my bad habit of focusing on negative news, even when the markets are doing well.
If you, too, find investing more challenging than it seems, take heart—it is entirely normal to feel this way. Markets are inherently unpredictable, and uncertainty is unavoidable. Add the constant stream of financial news and social media, and it’s no wonder our emotions run high when investing.
Yet, for most of us, investing is essential. It helps protect our wealth from inflation and enables us to provide the quality of life we and our loved ones deserve.
Finding Conviction in Uncertainty
1. Invest for Worthy Goals
Investing should serve a purpose beyond merely “making your money work harder.” Reflect on what matters most to you and your loved ones. If you already have enough for your goals, fantastic—you may not need to invest further. For most of us, however, this isn’t the case, so knowing why we’re risking our money is vital.
2. Accept Market Unpredictability
Markets are unpredictable, and that’s a good thing. If they were predictable, investing wouldn’t yield returns. Embrace the uncertainty as part of the process.
3. Minimise Guesswork
Since markets are unpredictable, avoid strategies that rely on forecasting. Instead, focus on broad diversification across asset classes. Today, it’s easier than ever to hold a global portfolio in a single investment vehicle.
4. Know Where Your Buffers Are
Not every pound of our savings can or should be invested. Maintain emergency funds and ensure you have enough liquidity to avoid panic during market drops. A good rule of thumb is to ask: If my investments drop 20% tomorrow, can I maintain my daily life without dipping into them? And for how long?
Beyond the emergency buffer, consider these other factors as well:
- Savings rate
- Job security
- Number of dependents
- Personal health
- Adequate insurance coverage
- Flexibility to delay withdrawals
A downturn in the investment markets does not necessarily correlate to our ability to save or impact our job security. Having an understanding of these factors helps us assess our ability to withstand market downturns.
5. Give It Time
Time in the market often beats timing the market—a principle backed by research. While short-term investing is possible, it’s essential to set realistic expectations for returns. The longer your time horizon, the greater your chances of success.
However, this also means embracing the discomfort of a bumpy journey. Good planning and patience are essential.
Conclusion
Over the years, I’ve learned that acknowledging the role emotions play in investing is the first step towards staying in control. Unlike the logical decisions of the head, the heart often requires more convincing to stay the course.
Start with the right convictions. These will help align your heart with your head, ensuring you remain steady—even when markets take a turn for the worse.
This is an original article written by Ray Zheng, Client Adviser at Providend, the first fee-only wealth advisory firm in Southeast Asia and a leading wealth advisory firm in Asia.
For more related resources, check out:
1. How to Think Like a Casino When Investing
2. Active Investing That Adds Value to the Client
3. Lump Sum Investing vs DCA, Is There a Clear Winner?
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