If you’ve looked at your investments recently, you may be feeling alarmed.

The financial markets remain volatile due to inflation, the conflict in Ukraine, post-pandemic changes, and the rising cost of living.

But as we explained in last month’s blog post, how to deal with volatility in the stock market, the best thing you can do is stay calm and not panic.

At times like this, it’s a good idea to consider what type of investor you want to be.

Do you want to let your portfolio control you and spend your whole life thinking about money? Or do you want to control your portfolio (as best you can) and spend your time doing what you love?

Let’s take a look at two ‘Sliding Doors’-style scenarios to see how your life could look if you take everything in your stride, rather than let stress get the best of you.

Scenario one

You check your investment account a few times a week and follow the markets religiously, even though you don’t fully understand them.

Whenever the market dips, it feels as though your whole life is flashing before your eyes.

You’ve heard horror stories of people losing everything in the stock market and worry it’ll happen to you.

You ask your financial planner what you should do. Should you sell everything and invest in other sectors? Cryptocurrency? NFTs?

Your financial planner tells you to do nothing. You have a strategy in place and you’re on track to achieve your goals, they say. But you don’t listen.

You sell all your stocks and move the money into a savings account offering 1.5% interest. You know this won’t beat inflation, but you’re relieved to have everything in cash. Now you can protect yourself and your family from financial ruin. Or at least that’s what you tell yourself. You try not to think about the thousands you lost by selling your investments earlier than planned.

It’s a couple of years until you feel confident investing again. The stocks you buy are way more expensive than they were during the downturn, but the market is looking good and you’re confident it’ll continue to rise. And it does! You buy more and more. Your portfolio is performing better than ever before, and you start to wonder whether you’ll retire early. But after a few years, the market falls again. You panic, sell, and put the money into savings once more.

You keep repeating this process and the stress only gets worse the nearer you get to your planned retirement date. You decide to postpone retirement and keep working. You don’t have anywhere near enough set aside for the lifestyle you want, even though it feels like you’ve spent your whole life saving and investing for the future. You’ve sacrificed nice clothes and holidays. Money is all you’ve thought about.

Scenario two

Now, let’s consider how different your finances could be if you were to take a different approach to your investments.

When the market takes a tumble and the value of your portfolio drops, you see it as an opportunity rather than a disaster. You have money in a cash ISA for both emergencies and short-term goals, so you don’t need to sell your investments any time soon.

The way you see it, now’s not the time to sell. It’s the time to buy. You increase the amount you invest, as guided by your financial adviser, but don’t go too far. The last thing you want to do is spend the money you’ve set aside for next year’s holiday or your 17-year-old’s university fund.

You delete the investing apps from your phone and vow to only log into your accounts once every couple of months. You get on with your life and have the occasional meeting with your financial planner to discuss any changes to your financial situation.

5, 10 and 20 years pass by, and your portfolio’s grown consistently without you really having to think about it. You’re amazed at the power of compound returns interest and grateful you listened to your adviser every time they told you to hang tight.

You retire by the age set out in your financial plan and have the money you need to achieve all your goals. You haven’t spent the last few decades worrying about money. Quite the opposite, in fact. You automated your savings and investments years ago, meaning you can spend money on treats, meals in nice restaurants, and holidays without having to track every penny.

Now, which of these scenarios would you prefer? 

Do you want to spend a lifetime worrying about money, or do you want to get on with your life and let someone else do the thinking?

Your portfolio could be growing while you sip cocktails on the beach, but this will only happen if you trust both your financial planner and the process.

Constantly dipping in and out of the market won’t get you very far. You might avoid the market’s worst days. But you might also miss out on its best days – and this could cost you dearly.

According to JP Morgan’s annual retirement guide, a $10,000 investment over 20 years (based on the S&P 500 index) would be worth more than $60,000 if fully invested.^[1] But, if an investor, selling out of the market temporarily, missed the 10 best days, that amount would be cut in half. If they missed the 20 best days, that amount would shrink to a third of the potential value.

People want to know the secret to successful investing but it’s simple really: only by buying and holding for the long term can you build wealth and achieve financial freedom.

We can help you to be the right kind of investor. Get in touch to find out more.

[1] JP Morgan Guide to Retirement 2022. Based on performance of a $10,000 investment in the S&P 500 between January 1, 2002, and December 31, 2021.