You probably aren’t too worried about it, but April is Stress Awareness Month. Each year, the Health Resource Network sponsors this “month” to inform people about the dangers of stress and to share successful coping strategies. Obviously, it’s important to reduce stress in all walks of life — including your investment activities. How can you cut down on the various stresses associated with investing?
Here are a few possible “stress-busters”:
•Know your risk tolerance. If you’re constantly worrying about the value of your investments, your portfolio may simply be too volatile for your individual risk tolerance. Conversely, if you’re always feeling that your investments will never provide you with the growth you need to achieve your long-term goals, you might be investing too conservatively.
•Know what to expect from your investments. Uncertainty is often a leading cause of stress. So when you purchase investments that are mysterious to you, you shouldn’t be surprised if they perform in ways that raise your stress levels. Never invest in something unless you fully understand its characteristics and risk potential.
•Be prepared for market volatility. Over the long term, the financial markets have trended upward, though their past performance can’t guarantee future results. Yet for periods of months, and even years, these same markets can sputter and decline. So when you invest, be aware of this volatility; if you’re prepared for it, you won’t be shocked when it happens, and you should be able to better keep stress at bay.
•Maintain realistic expectations. If you think your investments are going to earn a very high rate of return, year after year, you are more than likely going to be disappointed — and you could easily get “stressed out.” You’re much better off, from a stress standpoint, not to expect eye-popping results.
•Diversify your portfolio. If you were only to own one asset class, such as growth stocks, and that particular segment took a big hit during a market drop, your whole portfolio could suffer, and it could take years to recover — causing you no end of stress. But if you spread your investment dollars among a range of vehicles — stocks, bonds, government securities and so on — your portfolio has a better chance of weathering the ups and downs of the market. (Keep in mind, though, that while diversification may help you reduce the effects of volatility, it can’t prevent losses or guarantee profits.)
•Think long term. If you only measure your investment success by short-term results, you can feel frustrated and stressed. But when you stop to consider your objectives, you may find that the most important ones, such as a comfortable retirement, are all long-term in nature. Consequently, it makes more sense to measure the progress you’re making with your investments in periods of years, or even decades, rather than days or months. Instead of fretting over your monthly investment statements, compare where you are today versus where you were 10 or 15 years ago. The results may well surprise and help “de-stress” you.
Stress Awareness Month will come and go. But by making the right moves, you can help take some of the stress out of investing for a long time to come.