5 tips to keep calm when other investors are losing it

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As we approach a new administration and an unpredictable economy, the world of investing seems uncertain. If you’re unsure how to proceed, you’re not alone.

No matter how you think the market will do, here’s what to keep in mind:

The stock market does well over time, and experts agree that pulling all your money out because you’re afraid of a sudden, cataclysmic crash is foolhardy.

Another thing to consider: If you yank money out of the stock market, you need to make two decisions. When to pull it out, and when to put it back in.

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Cooler heads prevail in investing

Keeping calm is your best strategy.

“A dramatic shift in strategy likely won’t do you any good,” says Jude Boudreaux, a financial planner and the founder of Upperline Financial Planning in New Orleans.

“It’s very boring advice,” Boudreaux says, but true: Stick to your plan and realize the risks of making impulsive decisions driven by fear.

Here’s how to stick to your investing plan during volatile times.

1. Keep an investing diary

Dan Egan, an online investment adviser at Betterment in New York City, recommends keeping a personal investing journal. Jot down your thoughts after you’ve made investing decisions. Did you take money out to pay for car repairs, or were you worried about something that was happening in the economy? Next, write down the outcome. Was it a good decision, or a bad one?

In the cold light of day, write down your plan for what you’ll do if the market starts to get rocky. Egan says this comes straight from the playbook of Benjamin Graham, an economist and professional investor.

“Making decisions and recording them when you’re in a cool state of mind can help you make more rational decisions when you’re feeling more emotional,” Egan says. “Writing down plans is very effective.”

2. Stay off Twitter

John Sweeney, executive vice president of retirement and investing strategies at Fidelity in Boston, recommends ignoring short-term news stories.

“That will be helpful in staying focused” on your long-term goals, he says.

Not only is it helpful, it cuts through the noise.

“When it comes to your investments and your portfolio,” Egan says, “the things you see on the news and Twitter don’t affect the stock market as much as you think.”

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3. Look at it as an opportunity

Are you in your 20s or 30s? Young people need to learn to see market dips as a positive.

“Any drop should be viewed as an opportunity to get in when stocks are cheaper,” Egan says.

Far from pulling out or selling off, be glad for the opportunity to buy investments at a sale price.

4. Dial it back a little, if needed

People closer to retirement or in retirement need to taper their reactions. Avoid the extreme and follow some strategies to allow yourself a good night’s sleep.

First, put a portion of assets into a safe bucket, such as a money market fund or CD. Egan suggests one or two years’ worth of expenses in cash so you can keep the rest of your money invested properly.

“You don’t want to shortchange your long-term plans,” he explains.

Don’t make extreme reallocations. It’s fine to step back from stocks, but instead of going from 70 percent to zero, move to 50 percent. This can give you a feeling of comfort while still being in the market.

5. Let the market work for you

Sweeney points out that the stock market is now up 200 percent since the lows of 2009, and the bond market is up 40 percent over the same period. If you stayed in, you’re probably glad you did.

Whatever happens over the next few months or years, Boudreaux emphasizes that volatility is the price of admission for return.

“It’s really important to know your risk tolerance,” he says. “Being well-diversified and letting (the market) work for you over time will do better than trying to predict the run-ups and beat the pullback.”

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Jill Cornfield

I'm a reporter at Bankrate, talking retirement – my own as well as yours. Sign up for my free newsletter.