How To Think About Investment Losses
The last year or two in the market has seen some extraordinarily volatile days, both in the positive and negative direction. A 2% up day, a 3.5% down day followed by by another negative day. It’s enough to make the average investor sick to their stomach.
Apparently, I’m Not The Average Investor
During the ups and downs of the financial crisis, I noticed at least 2 or 3 separate occasions where I had lost more money that day than I earned in an entire month at work. It goes without saying these losses were quite significant to my net worth. Most peoples’ reaction would be that of panic and perhaps an emotional desire to pull everything out of the market, but I was actually pretty optimistic about it.
Successful Investors Always Look On The Bright Side
My first reaction was “cool, I have a large enough portfolio to lose more in a day than I earn in a month!” It occurs to me that this sort of attitude is very important to long-term investment success. A positive attitude about money prevents stressing out over the day-to-day fluctuations of the market. The worst thing one could possibly due is panic and sell out at the bottom, locking in a large loss. Usually, that sort of panic comes as a result of investing beyond your risk tolerance.
The next time you notice your portfolio take a dive (you aren’t checking it every day, are you?), try to figure out a way to look on the bright side. Something along the lines of “at least I’ll be able to buy more stocks with my 401k contribution next week” or “I’m just thankful I have money I can afford to lose, unlike most people.” Lame I know, but sometimes we just have to remind ourselves what matters in life.
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