Don’t take it too personally
If you invest in stocks or have a retirement plan, you are very likely to have lost some money this year at least on paper. These losses in the market feel painful, but they are almost inevitable. Remind yourself that you are not alone as many others are also suffering from the recent market correction like you are.
Try not to look at your investment portfolio and the market too closely. In other words, don’t look hourly at those stock charts on your phone and on your computer. One of the main barriers to long-term success for many is their own psychology. It is not about financial market knowledge or stock picking. In a volatile market, your greatest enemy is yourself.
Keep a historical perspective
Remind yourself that the stock market and most financial assets had a strong run in the past 10+ years and a correction is long overdue. In the last 20+ years, we experienced the 2000 technology sector bubble, 2008 global recession and 2020 coronavirus pandemic market crash. And each time, without fail, the market has recovered to claim new highs, proving that investing for the long term always pays off. If you know your investment and have strong conviction on it, you should hold on to it and wait for the price to recover. While things may look bad for a while, they are not likely to stay bad forever. History shows that pandemic, war and recession do and will end sooner or later.
Learn from your mistakes
Did you get greedy and put too many eggs in a single basket when the market was on a tear last year? Did you soak in the news media and followed the herd by investing in last year’s hot IPO, SPAC, meme stock and cryptocurrency? Try to learn from those past mistakes to avoid repeating them in the future. During a bull market, it is easy for everyone to make money. It is during a bear market that your investment acumen is really put to the test. The key is to come out ahead through a complete market cycle.
Harvest your loss to cut your taxes
If you have lost your conviction on an investment, consider harvest some of your capital loss before year end to reduce your income tax bill. In the US, IRS allows you to write off a max of $3000 for capital losses in a given year. If your loss exceeds this amount, you can carry forward the remainder to write off against future years’ taxes.
Seek professional help for support
When times are tough, even the most successful investors will have second guesses and doubts about his/her investment decisions. The market downturn may have a real impact on your lifestyle, expense budget and retirement plan. Consider hiring a financial advisor to kick the tires on your retirement plan and get a second opinion on your investment portfolio. Having someone to talk with and to guide you through these tough times may be the best investment during a market downturn.
The Bottom Line
Investing may look easy but making money doing it is much more difficult. Don’t beat yourself up too much if you are an amateur investor as you are just behaving like everyone else. Learn from your and others’ mistakes and turn them into your wisdom for the future. Seek professional help for both financial guidance and emotional support if necessary.