I think it is extremely wise to cautiously fear the stockmarket.
The fear shouldn’t be so crippling that you are scared to invest at all. Nor should it be so non existent that you take on extremely risky practices.
As a financial adviser I have seen clients on both ends of the spectrum and their fear, or lack of, is getting in the way of maximising returns relative to risk.
With the stock market going great of recent times, there has been an increased sense of no fear. In fact, apart from the large blip in March 2020 thanks to Covid, it has been pretty smooth sailing in the upwards direction for the last 10 years or so.
Investors are increasing in numbers in their risky practices.
Trading in and out of stocks.
Putting large chunks of their wealth in a single stock or single asset class.
Using the stock market as an emergency fund.
Using the stock market to fund a house deposit or short term savings goal in a year or two.
It is hard to lose when the stock market is doing so well, and this just reinforces these risky behaviours. But there will come a time when the market will humble these investors.
The market will always find a way to surprise or disappoint the largest group of investors.
Such investors will then be shocked that bad times can happen as it has been so long. They will then panic and sell or panic and hold on to their position for dear life. Often they will then go from having no fear to having all the fear in the world.
After the 1987 stock market crash, many bullish investors got scared and took a very long time to re enter the market, if at all. It shot their confidence and they were out of the market during some of the best returning years.
Risky investing in combination with unpreparedness can prove extremely costly over the long run.
Investing is a long term game, and we shouldn’t be so reactive to the daily or even yearly price movements. We should have an investment plan that will best weather both good and bad times so we remain invested for as long as possible, instead of riding in and out of the market based on the feeling du jour.
The best investors over the long run are those that are realistic cautious, but not overly cautious nor throwing caution to the wind.
The balanced view for successful investing is to realise that there can be significant ups and downs, but over the long run, business will continue to improve, and well diversified investments will deliver good results.
The only surprise in investing is that if there is no surprise. If history has taught us anything, anything can happen, and often does and when we least expect it.
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The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here