There is no question that January was not for the faint of heart when it came to stocks. The Dow lost nearly 4%. The S&P 500 lost about 3%, and the Nasdaq was down over 2%. In addition, these were not nice orderly declines. There were several nail-biting days when the market moved up or down a few hundred points. All this comes after those sweet double digit gains for many stocks in 2014.
We’ve all heard the advice. Don’t panic. Ride out the lows. That’s a lot easier said than done, considering financial insecurity can affect every part of our lives from our lifestyle to our relationships.
For African Americans, riding out market storms can be especially challenging. Many are not yet feeling the effects of the economic recovery due to a double digit unemployment and being on the losing side of the income gap.
These trends are the norm for Blacks making it no surprise that Research by Ariel Capital Management and Charles Schwab and Company has found that Black investors pull out of stocks during tough market times quicker than other groups.
“There is a lot of fear around losing it all or having to work ‘forever’ if they have any type of setback. For Blacks, their wealth feels more vulnerable,” said Jacquette M. Timmons, financial behaviorist and author of Financial Intimacy.
“If they venture into stocks, bonds and mutual funds it is usually through retirement savings and they often make the classic mistake of selling when the market dips because of their fear. This pattern is only exacerbated for blacks whom are working- and middle-class with an even more fragile financial profile,” she adds.
Three tips for moving beyond fear and into wealth:
Have investment goals and stay connected to them.
The most important component of any financial move is to know what you’re doing it for. We often get so worried about the numbers that we forget that they are simply one of the tools we’re using to achieve a goal or life style that is in step with our vision for ourselves and our loved ones. Get clear on what that goal is and figure out how your money has to work – the returns you need – in order to achieve that goal. The U.S. stock market is one of the best games in town when you consider its average annual returns of about 7% on an historical basis. Remember, you don’t lose a penny in stocks until you sell.
Put a layer between you and your investments.
Every month, I have money taken out of my bank account and put directly into a mutual fund in addition to emergency and retirement savings. That extra step gives me that ‘moment of pause’ to put some space between fear and action. Make your investments automatic. “Fear is a natural human instinct. To calibrate that you have to have systems in place to not let your emotions run the show,” said Art Hogan, Managing Director and Chief Market Strategist at Wunderlich Securities. Hogan also points out that if you would have invested $1,000 when President Obama took office and stuck with out – bear market and all – that $1,000 would have been $2,270. The only way you would have lost that money is if you let your emotions get the best of you.
Invest for the long-term.
Invest in a plan and stick with it. This can include dollar-cost averaging – breaking your investments into intervals – http://www.investopedia.com/terms/d/dollarcostaveraging.asp. You can also capture the benefits of compounding by reinvesting any dividends. Also, be sure to rebalance your account on a regular basis to make sure that your portfolio is on track to help you meet your goals. You can also reap the benefits of long-term investing through retirement accounts like 401 (k)’s and IRA’s, as well as education savings plans like 529’s to help you meet any goals with helping a child in your life pay for education expenses
I am no stranger to the fear that can come when you see the markets fall and the ways in which blacks experience that panic. Take a deep breath and get real with the fact that when you consider our unique financial pressures, we can’t afford to let our emotions get the best of us when it comes to stocks.