The whole idea of investing is to get to the point where your money does the work and you can afford to relax. But you may get there faster by learning to relax now. Single malt or salmon?
Excitement, anxiety and expenses can trap you in cycles of greed and fear. Instead, try breaking out by using a few financial and physiological tricks. It can make the whole process more relaxed -- and more profitable.
1. Commit now to doing something later. Stake out the companies that interest you, and set a price you consider a bargain. That way, you'll be ready to pounce at the next market downturn.
When the downturn comes, you may be too scared to pounce, like everybody else. But if you're confident now that a company is stable and has good long-term prospects, consider putting in a standing order to buy it at a set price (it's called a limit order). That way your brokerage will automatically buy the stock when it hits your price, without your having to work up the nerve.
2. Save more tomorrow? Pre-committing is also a good remedy for the tendency to procrastinate. Employees at one midsize manufacturing firm knew they needed to save for retirement -- but not just yet because saving felt like a loss of disposable income.
So behavioral economists Richard Thaler and Shlomo Benartzi devised the Save More Tomorrow plan. It asked the employees merely to commit to a savings increase next time they got a raise. Because it enabled them to do the right thing without ever seeing a drop in their take-home pay, 78% of workers signed on.
Over the course of their next few raises they automatically boosted their savings rates from an average of 3.5% to 13.6% of their salaries. So make the same kind of commitment to yourself, and then stick to it.
3. Invest, then check back in six months. Face it: You're not going to outsmart the market day in and day out. So stop trying. The daily ups and downs will just agitate you and make you jump in and out of stocks, running up your transaction costs. Pick investments with solid long-term prospects, then forget about them for a while. If you're really worried, you can put in a standing stop-loss order to sell a stock that drops 10% or 15% from your purchase price. (Although maybe you shouldn't buy that stock in the first place.)
4. Think about your portfolio. Sexy stocks give you that little thrill. But you will be more rational about risks and rewards if you consider any stock in the context of your entire portfolio. That means knowing your objectives and asking whether this is the best stock to get your there.