How to Invest in Times of Stress and Chaos

No one can predict with accuracy how markets or interest rates will perform in the future. Likewise, no one can call the top or bottom of any particular market and repeat with precision such an act.

There is one thing that can be forecasted with absolute certainty, and that is every investor will go through periods of stress or chaos in their investing journey. How you deal with this tumult will directly impact your wealth. For example, if you were a recent retiree in 2008 and panicked and sold and locked in your losses, your later years of retirement were likely harmed and you are still feeling the effects of panic selling.

Market Chaos

Every investor in their lifetime will experience Bear markets, interest rates changes and possibly wars. All three are occurring now and it can be unnerving, especially to someone who has never felt the impact to their portfolio of such events. For example, if you were an investor in 1987 and saw your portfolio drop precipitously, it was shocking. Twenty years later the 2008 meltdown while disturbing, simply did not have the same emotional effect on these older investors.

Personal Stress

Death of a close family member, divorce, and loss of a job are all events that can put an investor into incredible stress. It is in these times that someone is most likely to make an unwise decision based on emotion, rather than logic. The burden of surprise negative events sometimes causes a person to want to wrestle back control of their lives and this is where a rash decision can be made. It could be the “sell everything” reaction or it could be the “put everything into a zero risk” investment.

So, What Do You Do?

There are several tried and true tactics to take in times of external or internal stress. First, never make a snap decision. Do the opposite of the times, and be calm and do not make fast or rash decisions. Second, speak with at least 3-4 other people you trust to get several other opinions on the course of action. One of these people should be a licensed financial advisor. If you do not have one, hire one by the hour that only does financial planning, as opposed to someone who does asset management. This will subliminally and literally tell you they have no agenda to make investments, just guidance on the course of action. They get nothing from you aside from the fee they charge for their advice. Finally, keep an open mind as in the case of external stress, i.e. falling markets, these are the times that terrific bargains are available and the chaos is exactly when great future gains can begin.

Market gyrations and personal stress are certainties in every investor’s lives. How you react to these difficult times is critical. What is very comforting is that millions of successful investors have come before you and followed these tactics and secured a much better future.

Related: When to Take Advantage of Market Anomalies