The illusion that volatility equals risk causes people to be either too aggressive or too timid with their money in the moment, so they lose out on the opportunity to slowly and patiently grow their wealth over the long haul. Take a few minutes to consider how your mind and emotions move when you see the stock market and your account balances rise and fall.
Divide a fresh sheet of paper into three columns titled: Events, Feelings, and Reactions. In the Events column, list recent economic, political, or world events that caused volatility in the stock markets and triggered an emotional response from you. Some recent examples include Trump, Brexit, the Housing Market Collapse, the Terrorist Attacks on Paris, etc. Turning to the Feelings column, describe how each of those events made you feel about your financial (and human) condition. Nervous? Frightened? Excited? Feelings are complicated, so you may need more than one word to capture your emotional response. In the Reactions column, list what (if any) actions you took/didn’t take in response to market volatility. A few examples would be Stopped Contributing to my 401K or Sold Every International Investment I owned or Checked My Account Balances obsessively. Hopefully none of the above.
Looking forward, make a conscious decision to “just sit there,” rather than react, the next time the market dishes out more volatility than you can handle. Decide in the relative calm of today how you are going to react when turbulence hits tomorrow. Write a behavioral prescription for yourself in your notebook, and then follow those “doctor’s orders” religiously. Some helpful Prescriptions include: Computer Off, Walking Shoes On, Stop Checking Account Balances Daily, Breath!!!
You’ll find more helpful practices in my book Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend.