Remaining Calm Despite the Financial News

The past couple of weeks have had a large quantity of bad news for the financial markets, from debt ceiling debates, problems in Europe spreading, and a downgrade on the US credit rating.  Throughout this, the stock markets have gyrated and lost over 10% of their value from the peak. It’s easy to panic in these circumstances, especially given the steep descent that many people suffered a couple of years ago.  Remaining calm when markets gyrate is usually a better policy than trying to time the markets and looking at every up and down tick.  Here are some things that I do:

–I force myself to turn off the news from time to time — I find that very little financial reporting is appropriate analysis for the regular saver/investor, but instead tries to latch on to hourly movements, surprising or shocking stories.  Similarly,

–I try not to look at my portfolio too often — for the same reason that it might cause irrational decisions.

–I resist the temptation to sell low and buy high — I find too many people panic when there is bad news, meaning they are constantly finding themselves selling into a panic and buying when markets are euphoric.  I know this is easier said than done.

–I maintain reasonable cash levels so that I don’t need to liquidate investments if needed — this means keeping an emergency fund fully funded. This way, if some unexpected expenses come up, I don’t need to sell my investments that are down.

–I look for hidden black swans — by that I mean things that might be completely risky and unexpected. These are the things worth adjusting your investments or strategy for.

shared at this week’s Carnival of Personal Finance