In March 2020, most G20 nations saw 30% wiped off the value of their stock markets.
This has created a monumentally difficult situation for investors. As a group, we’ve been forced to stomach both the investment volatility and the severe disruption caused by ‘lockdown’ guidance.
However, I want to remind you that we’re all in this together. It doesn’t matter whether you have a workplace pension, an investing pot for a house deposit, or a DIY retirement fund. Investors of all sizes and styles are nursing serious losses right now. You are certainly not alone.
In that spirit, I’d like to use this article as an opportunity to share 4 ways that you can find a sense of ease and calm during this potentially stressful time.
1: Meditation and Mindfulness
When was the last time that you sat still, removed all stimulation and let your mind truly settle?
Cambridge Dictionary defines mindfulness as “the practice of being aware of your body, mind, and feelings in the present moment, thought to create a feeling of calm.”
Does this sound too ‘New age’ or ‘Hippy’ to you? If the thought makes you recoil slightly, I’d like you to return to the image of yourself sitting in a quiet place, free from busy thoughts, with a sense of contentment. Does that sound like a good place to be, or not?
Meditation and mindfulness are very compatible concepts, so you’ll often hear them in the same sentence. People will often practise mindfulness by meditating. This is because it’s very easy to cover the mindfulness basics when free you are free from distractions:
- Becoming aware of your surroundings
- Noticing your thoughts
- Paying attention to your body and the breath
Apps such as Headspace and Calm offer an endless choice of guided sessions, which can be as short as 10 minutes or as long as half an hour. A moment of mindfulness can be slotted easily into any morning or evening routine, making this an easy habit to form.
If persistent worries about investment decisions or losses are infringing on your sense of wellbeing. If you are feeling more anxious than normal about the volatility of the markets, then I recommend that you try a few short sessions on the apps listed above. They’re available to try for free, so why not see if you can slip past those busy thoughts and be reunited with your underlying sense of calm.
2: Change Your Focus from Growth to Income
As share investors, we usually focus on one number; our investment portfolio valuation. This isn’t surprising. It’s the headline figure we see when we log into our investment account. Above all, it’s a clear indication of the buying power of our wealth.
As a result, our sense of ‘winning’ and ‘losing’ is almost inextricably linked to the value of our shares. When the value falls, we fall.
But what if valuation wasn’t our primary concern? What if we measured our investment success with a different indicator? One which still translated into the financial strength of our holdings, without being as sensitive to bad news?
What I’m describing is the flip to an income mindset. The mindset employed by several investment styles, but most notably by the ‘dividend investing’ crowd.
The objective of dividend investors is to maximise their income. They view a stock or share as a ‘unit of income’, with each acting like a money-making machine which slowly prints dollar bills.
The difference between these approaches becomes most stark when the market takes a dive.
The Valuation Mindset Says:
This is bad news. Today we lost. In hindsight, our recent investments now look like the wrong decision. We may hesitate when investing further in case we make the same mistake again.
The Income Mindset Says:
This is good news. The price of these income machines is now cheaper than yesterday. For the same payment, we can buy shares in greater quantity and further boost our dividend potential.
It doesn’t take a financial expert to conclude that the income mindset helps to nudge investors towards buying low and selling high. That’s one benefit. But the second is that the income mindset investor simply isn’t worrying! And that’s why it might be worth you considering a move to tracking your dividend income instead.
During recessions, it’s true that dividends are sometimes cut and therefore even a dividend investor will experience setbacks. However, over historic periods, it is clear that dividends are far more stable than the company share price, so you’re still in for a smoother ride. And if your business is taking a hit from a recession then knowing how to pivot your business can save you. Try to pivot into doing something similar to what you’re currently doing if possible.
3: Reaffirm Your Investment Vows
This third strategy is probably the easiest in this article, but effective nonetheless.
During bear markets, do you experience pangs of regret, guilt and frustration?
Do these thoughts sound familiar:
- “I wish I hadn’t invested at the peak!”
- “If I could go back, I would have sold my shares 6 weeks ago!”
- “As soon as the shares recover, I’m going to sell them!”
This the sound of a desperate brain struggling to adjust to a new reality. While you begin to accept temporary losses, it’s not unusual for your brain to fight back and ‘hope’ the problem away.
A much healthier approach is to keep an investment diary. In this diary, you should make a log of the key investment decisions you have made, as you make them. The crucial element is recording your specific reasons for making the investment, and what you expect to get out of it, by when.
In troubling times, it can be helpful to return to your diary and review your decisions. I call this ‘reaffirming your investment vows’.
So what type of revelations can you hope to yield from a flick through of your own thoughts?
Often, it’s a reminder that your investing goal was a long term one, which you expected to reach in the distant future. This can settle the mind by reminding that this temporary setback has probably not impacted your likelihood of achieving the goal. Despite the chaos, you’re actually still on track.
You will also be able to reflect on the fact that you made your investment choices with the best information at the time. And that, if you were placed into your shoes again, you would have made the same decision every time. This can help to quell the self-doubt and frustration that investors sometimes experience when a trade doesn’t immediately go their way.
4: Switch Off From the News
No news sells like bad news. Unfortunately for us, this means that reminders of our current financial situation are likely to appear everytime we open a financial newspaper, flick on the news or browse a trusty news website.
In the age of rolling news coverage, this can create an unnecessary level of hysteria which isn’t particularly helpful. The frequent interruptions with negative headlines can also disrupt your mood.
If you’re a buy-to-hold investor, you’re in this for the long haul. This means that you have committed to ride out the dark times and not sell just because the going is getting tough. So why not switch off the TV, or unfollow the financial news sources on your social media for a short period.
If this information isn’t actionable, then there’s little benefit in you being battered by it.
Stay True to Your Investment Plan
This is not the first stock market crash, and nor will it be the last. I hope that the tips and tricks above will not only help you get through the next few months, but will also prove helpful later in your investing journey.