Getting Spooked by All-Time Highs in the Stock Market? Ep #149

October can be a scary month in the financial world since many major market events have occurred in this month.

Couple that with anxiety-inducing headlines, and an economy that is beginning to make a comeback from the pandemic, and many people have become hesitant to invest. 

This week we are discussing strategies for how to fight the fear that comes when markets are near all-time highs.

Watching the news can be expensive

If you watch the news at all, you may have seen headlines that are designed to pull at your insecurities. Everyone is talking about the economy right now: there are supply chain issues, potential tax hikes, and inflation. All of these events have been brought on by the devastating financial effects of the pandemic. 

Record market highs have people wondering whether now is a good time to invest. Many people are worried about an impending fall in the markets and have chosen to hold onto their cash instead. Others don’t know what the right choice is for their money and are crippled by analysis paralysis. The consequence of leaving your money in cash is that it will cost you in the long run since cash diminishes your purchasing power over time. 

A financial planning process can help you make decisions

You don’t want to get stuck with analysis paralysis. A financial plan is key to knowing your investment strategy and will help you answer the question: should I invest my cash? Having a financial planning process can provide you with a disciplined strategy that can help you make financial decisions. By creating a financial plan you’ll be able to consider your goals and your time horizon. That way you can understand whether you can weather the storms in the markets. 

What if I invest it now and the bottom falls out?

This past decade has been an easy ride for DIY investors. There have been at least 10 record highs a year over the past 10 years. However, many people fear that if they invest while the market is high that they will lose money when the market drops. 

One way to combat that fear is to analyze the numbers. Let’s look at historical data. Of the people who invested at all-time highs, 81% were better off 1 year later and 77% were better off 5 years later. That still leaves a chance that you will lose money which is why it is important to have a safety net. 

Investing is like a roller coaster ride. The only time you could get hurt is if you get out of your seat.

Investing pitfalls to watch out for

The average investor is susceptible to several common investing pitfalls. One of these is recency bias. If a stock has performed well in the past then many assume that it will continue to do well. Rather than make this assumption you’ll need to study its performance over time. 

Another pitfall is market timing. Many people get a feeling about the market and they try to time their entrance and exit, but history has shown that most people can not time the market accurately. 

Listen to this episode of Financial Symmetry to hear all of the perils that could arise by pressing play now. 

Outline of This Episode

• [3:08] What is it about headlines that make people feel uncertain
• [5:51] A financial planning process can help you make decisions
• [8:14] What if I invest now and then the bottom falls out?
• [12:50] Pitfalls that average investors fall into
• [17:25] Today’s progress principle

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