This article was featured in Maine Women Magazine June 2021
If you followed the stock market in 2020, you know that it was a rollercoaster ride. The market’s initial reaction to COVID-19 was swift and dramatic: the S&P 500 dropped 34% from February 19 to March 23. I spent March and April counseling clients through this challenge. Then the market recovered and ultimately had an above average year, with a total return of over 18% for 2020.* By December, few clients were calling to discuss market performance.
The fear of loss in investing is much more powerful than the joy of positive returns. Fear causes millions of investors to sell when the market bottoms, and it keeps others from investing in the first place. Women in particular don’t invest in stocks as much as men and it’s not totally clear why. But I’m certain that sometimes, risk and fear of loss is the reason. Multiple studies show that women actually tend to be better investors than men and they should be empowered to take on the stock market.** Whether you’re a brand new investor or have been at it for years, keep these four things in mind when fear starts to creep in.
- Don’t try to get the timing perfect. I’m often asked if “now is a good time to invest.” The short answer: I don’t know. The market is rarely predictable in the short-term, and I can’t tell you if stocks will be worth more tomorrow than today. What I do know is, long-term investors are typically rewarded. Giving your investments time to grow is more important than investing at the “right” time.
- Understand that inflation is a risk, too. If you’ve been stashing cash in the bank to spend on travel when you retire, it might not get you very far. With few exceptions, the prices of things you buy today will be higher in the future, and most bank accounts don’t pay enough interest to keep up with inflation. Stocks tend to grow faster than the rate of inflation.
- Risk isn’t an all or nothing decision. You don’t have to put all your money in the stock market, especially if you expect to sell some or all your investments within five to ten years. Bonds have historically offered higher rates of return than cash or money market funds, but lower returns and less risk than stocks. Investing some of your assets in bonds can bring down your overall risk level. A financial advisor can help you decide on an appropriate mix of stocks, bonds and cash.
- Put volatility in perspective. Your home is a long-term investment, just like your stocks. However, you don’t have an app that gives you an accurate valuation of your home every minute of every day. Further, you probably don’t worry much about your home value until you’re getting ready to sell. The ability to check your portfolio value whenever you want is wonderful, but if you aren’t selling those investments anytime soon, you shouldn’t panic every time the value drops.
*Total return includes capital appreciation, interest and dividends.
**A 2017 Fidelity study found that women outperform men in investing by 0.4%. A 2016 Wells Fargo study found that women achieved higher returns on their investments while taking less risk (as measured by variability.)
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Past performance is no guarantee of of future results.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.