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A Conversation With a Nervous Investor

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A Conversation With a Nervous Investor

Nervous Investor:

Interest rates are rising!
Unemployment is at a record low!
Stock prices are plunging!
I’ve read all the headlines and listened to all the “experts.”
I don’t know what to do.

Financial Expert:

Well, you could sell all your equities and go to cash.

Nervous Investor:

Sure, that sounds like a great idea! Cash is guaranteed. Your face value can’t go down.

Financial Expert:

That’s true, except that inflation will eat your cash like Pac-Man. Long-term, it’s a guaranteed loss.

Nervous Investor:

I could sell all of my stocks and buy bonds! High quality bonds are safe, right?

Financial Expert:

Sure, but if interest rates are rising, your bond values are likely to dip or dive and while you are getting that fixed income distribution, inflation is eating that return too.

Nervous Investor:

Maybe I should look for whatever market segment is doing great and move my money there?

Financial Expert:

That sounds like a winner, but there isn’t such a great track record of buying after something is very successful. You very well might have missed the opportunity.

Nervous Investor:

There’s always precious metals, commodities, cryptocurrencies, or real estate, right?

Financial Expert:

Definitely, except you need to be knowledgeable in these areas. They can be extremely speculative. How much risk can you take?

Nervous Investor:

OK, so you’re telling me that cash, bonds, market leaders and alternative investments aren’t good?

Financial Expert:

No, I’m not saying that at all. I am saying that before you make an important financial decision, you want to understand your motivation and the implications of your decisions.

Nervous Investor:

My motivations? I am really nervous about the stock market and I don’t want to lose all my money! How’s THAT for motivation?

Financial Expert:

Absolutely, I get it. But let’s take a step back and gain some perspective. Markets are unpredictable all the time. Any number of factors can impact the market, minute-to-minute, day-by-day, and year-by-year.

Look back at history—markets move up and down, but mostly up. Down years are normal as are recessions and periods where they kind of do nothing.

Nervous Investor:

Everyone said the markets were due for a correction, why didn’t we sell everything sooner?

Financial Expert:

As I said, markets are unpredictable at best. What would have happened if you sold everything before markets became volatile; when do you go back in? No one can predict and time the markets consistently with any level of assurance. It is virtually impossible.

Nervous Investor:

I want safety. What should I do?

Financial Expert:

Buy a pillow. Seriously, it begins with a big picture understanding of what you are trying to achieve. If you have more money than you can ever want or need and the effects of inflation won’t alter your ability to live the life you desire, then feel free to put your money in Treasury Bills that are considered to be risk-free securities.

However, if the long-term impact of inflation is likely to erode your wealth, then you need to accept a certain amount of risk.

Nervous Investor:

But how do I know how much risk? It’s all very complicated.

Financial Expert:

Yes, it is complicated. But you can gain an understanding about risk when you understand the aspects of your financial life.

It is important to understand the variables, transitions, and uncontrollable aspects that impact your income, spending, and how much money you might need for certain things.

For example, responsibilities like sending your children to college, buying a home, paying your bills, and not outliving your assets all require a plan a road map.

Related: Four Ways to Financial Well-Being in the Age of Blame

Nervous Investor:

That sounds really overwhelming to grasp. So many factors, so many possibilities; where do I start?

Financial Expert:

Start by taking a snapshot of your financial picture today. Ask yourself the following questions: What do you earn? How much do you spend? How much are you saving? How much of your spending is fixed and how much can you control?

These questions are a good place to start in moving closer to making reasonable financial decisions.

Nervous Investor:

OK, I get that. But how does that help me understand how to invest my money safely? It was easier when the markets were moving up.

Financial Expert:

Let me try and simplify this very complicated topic. If you have long-term goals, you can afford the markets’ ups and downs. If your goals are short-term, taking risk with that money is plain stupid.

History has shown us that even though markets hit rough patches that can last days, weeks, months or even years, they have always come back to achieve greater highs.

But the key is time, spreading your investments in many different asset classes and understanding what kind of return is necessary to achieve your long-term goals. Work with professionals who work with your best interest in mind.

Nervous Investor:

Is there anything else I should be doing in light of the crazy markets and terrible headlines?

Financial Expert:

Yes, spend your time gaining a better idea of your financial life and turn off the noise.

Devote your time defining what’s really important to you and the ones your love and work to make that happen. It’s time well spent.

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