Author Topic: Difficulty dealing with the emotional swings of investing  (Read 18426 times)

Invester17

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Difficulty dealing with the emotional swings of investing
« on: March 25, 2021, 06:34:38 AM »
Hi all,

Quick snapshot of my financials -
30 years old
240k salary (give or take)
5 properties (4 rentals, 1 primary home) - all in all they basically pay for my primary residence and I live rent free.
400k in Vanguard brokerage (taxable)
270k in Fidelity 401k
33k in Roth IRA
26k HSA
14k in Robinhood (used for individual stocks, the rest the accounts are all broad market ETFs)

I know I'm extremely fortunate to be in this position financially but the problem I have now is my emotional connection with the investments. It totally kills my mood, for days & weeks when the market is down. I find myself buying and selling (trying to time the market). The swings usually consist of the 401k going up or down 10k and the Vanguard recently took a big hit 30k due to all tech stock volatility.

I'm looking for guidance on #1 how to stop timing the market (what do you tell yourself to avoid messing with it) and #2 any tips on dealing with the emotional swings as the market goes down.


Thanks
« Last Edit: March 25, 2021, 06:55:19 AM by Invester17 »

Steeze

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Re: Difficulty dealing with the emotional swings of investing
« Reply #1 on: March 25, 2021, 06:42:03 AM »
#1 have an IPS written out and follow it religiously.
#2 experience, education, allocation

Perhaps limiting yourself to only trading in your robinhood account. All the other accounts you are only allowed to adjust once a year. Limit the amount you will allow in your robinhood account to a fixed percentage like 5-10%

MustacheAndaHalf

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Re: Difficulty dealing with the emotional swings of investing
« Reply #2 on: March 25, 2021, 08:33:32 AM »
Invester17 - So except for 2% of your investments in Robinhood, you're 98% invested in broad index funds.  Why did you notice the tech stock selloff?

The most diversified stock fund is Vanguard Total World, which holds a global mix of stocks at market cap weight.  When that drops, so does the entire world's investments.  To save on expense ratio, it's better to hold Vanguard Total Stock Market and Vanguard Total International.  Are those the kind of funds you invest in?

reeshau

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Re: Difficulty dealing with the emotional swings of investing
« Reply #3 on: March 25, 2021, 08:40:13 AM »
Get out of Robinhood.  Their app design follows the social media model, gamifying stock investing to *make you addicted to it.*

Most of all, it reinforces you checking frequently.  Once Robinhood is gone, then don't check your balances in between account statements.  If you need a mantra, remember that since you are buying shares, not selling, then markets go *on sale* sometimes--they become a better bargain for when you will use them, waaaaay down the road.  Even if you FIRE, you will have shares that you won't sell until you are 80.

You are doing great otherwise.  Don't let the 2% spoil the 98%.

bbqbonelesswing

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Re: Difficulty dealing with the emotional swings of investing
« Reply #4 on: March 25, 2021, 08:41:44 AM »
Check out some of Brett Steenbarger's work, like: https://www.goodreads.com/book/show/1322562.The_Psychology_of_Trading

If you can't get your emotions in check, then maybe your investments simply don't fit your risk profile. It seems like maybe you're happy with your real estate investments. You don't churn through those on a daily basis; you're ok holding them for the long term, right? Why is that? Maybe focus on a different area, like real estate, instead of trying to trade high-flying tech stocks and dealing with massive P/L swings.

Invester17

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Re: Difficulty dealing with the emotional swings of investing
« Reply #5 on: March 25, 2021, 08:49:35 AM »
@MustacheAndaHalf the Vanguard fund was 100% MGK ETF (mostly large cap so it took a bigger hit when tech sold off). I've since sold it and now I'm 100% in VTI as I thought we were rotating out of tech but now the market is just extremely unstable and feels like it's in a downward trend.

@reeshau I don't disagree w/ Robinhood I use that basically to fight the itch to trade individual stocks at a larger exposure. The problem from a visibility standpoint is I used Personal Capital and I'm basically addicted to it (look at it multiple times a day) this is where I really feel the large swings/losses across my entire portfolio and I end up panic selling and then jumping back in when things appear to begin a a new uptrend.

@bbqbonelesswing 100% I really like real estate because the valuations of the property is relatively consistent and I get cash flow each month (besides repairs but those are easier to manage in my mind).
« Last Edit: March 25, 2021, 08:52:36 AM by Invester17 »

dandarc

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Re: Difficulty dealing with the emotional swings of investing
« Reply #6 on: March 25, 2021, 09:02:02 AM »
Vanguard ETF I'd never heard of. I have no idea why you'd want to pay a higher ER to have lower diversity compared to VTI. Over half of that Vanguard account is in just 10 companies, at least 8 of which are "tech", arguably 9 and if I squint all 10.

Agree with others you need to read up and adjust your allocation to match your risk profile.

On reading up - the stock series: https://jlcollinsnh.com/stock-series/

Invester17

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Re: Difficulty dealing with the emotional swings of investing
« Reply #7 on: March 25, 2021, 09:31:21 AM »
Thanks all, I agree sounds like I should come up with a well balanced portfolio. I'd probably rather lower return for less volatility, to be honest just for peace of mind. Does anyone have an asset allocation they'd recommend for such results?
« Last Edit: March 25, 2021, 09:50:04 AM by Invester17 »

FINate

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Re: Difficulty dealing with the emotional swings of investing
« Reply #8 on: March 25, 2021, 10:06:53 AM »
I agree with much of what's been stated here already.

Start by determining your risk tolerance and investment horizon, then use these to define your asset allocation.

The key to long-term success is removing emotion from the equation by being a principled investor. Know your plan and follow it. Buying and selling should be a mechanical process: buy X amount each paycheck, rebalancing, etc. You should never need to look at your balance or log into your accounts unless rebalancing or tweaking your overall plan.

Finally, and probably most importantly, get rid of Robinhood and Personal Capital. I'm serious. Stop looking at your accounts and your investments will do better.


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Re: Difficulty dealing with the emotional swings of investing
« Reply #9 on: March 25, 2021, 10:12:50 AM »
You are doing great!! Does that 240K include the rental income or is that extra?  This is just like the thread a couple weeks ago when the person couldn't stop logging in and checking their portfolio.

100% stocks is optimal when you are still working.  You just need to learn to leave them alone. Set the dividends to automatically reinvest, and then turn off the notifications on all of your investing apps.   If you hear that the market is down make it a point to not look at your accounts until it goes back up.  Go for a walk or something.  The market always goes up. Read Collins if you haven't done so yet.

My husband likes to watch Cramer every day and trade individual stocks (this is a small portion of our total investments). He drives me nuts telling me about the market ups and downs, rotations, being "levered" to this or that.  I have a very high risk tolerance and don't really care about day-to-day fluctuations in the market.  Even the big drop last spring didn't bother me.  Colleagues would get anxious about it and I had to tell them to LEAVE IT ALONE.  I do check Mint a few times per week but that is mainly to see whether my fund transfers went through, and to help me monitor for credit card fraud and bank fees.

Steeze

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Re: Difficulty dealing with the emotional swings of investing
« Reply #10 on: March 25, 2021, 10:17:54 AM »
One thing I did that helped me a lot was to use mutual funds in Vanguard instead of ETFs - this way I do not need to log-in to buy. I can just set up automatic purchases that happen in the background without me knowing. Then I am not making decisions on what to buy or when. I just select my desired purchases in January and let the rest happen on its own. I check in once a month to update my tracking spreadsheet.

Allocation is a personal thing. I would recommend checking out portfoliocharts.com and also checking out what is in the vanguard target date funds. The important thing is setting an allocation you can live with when the market is going down so you don't feel like you are losing everything, but also something you don't feel like you are missing out when the market is doing really well. The jumping in and out and changing allocation on the fly is what makes people under perform.

Have a set % of each part of your portfolio and only re-balance when things get out of whack. You should never really be in a position where you need to sell 100% out of one fund and change to another fund. More like, "VTI should be 40% and VEU should be 20%, but they are 45% and 15%, so I should sell some VTI and buy VEU (or just focus on buying VEU until it is back in balance)"

If you want a tech tilt for whatever reason, you might buy 5% worth of VGT - if it gets to 6.25% or 3.75% you adjust as needed. This is a (5/25) re balance band strategy.

Also, you need to think in terms of decades - don't chase tomorrow's (or worse, yesterday's) performance. Set an allocation and stick to it. When parts of your portfolio under perform you are buying cheaper shares. If parts are running red hot you are selling some of the winners and buying the losers. If the whole portfolio is dropping then everything is on sale. In general you want stocks to be at all time lows when you are buying, and all time highs when you are selling. Celebrate the volatility, it helps you accumulate even faster. The headline number in your account goes down, but the number of shares you are buying goes up.

FWIW I think seeing the volatility is important - checking in and seeing the value in your account is good. It tests your gut - when your account value is 5x the current value that volatility will be even crazier. You need to learn to see it, live with it, and ignore it. You have to be able to see the volatility and not do anything.

When I see my account value drop 10, 20, 30% - I start looking for creative ways to BUY MORE NOW!! - selling does not even cross my mind.

MustacheAndaHalf

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Re: Difficulty dealing with the emotional swings of investing
« Reply #11 on: March 25, 2021, 10:46:08 AM »
Mega-Cap Growth is not considered a broad index fund.  Switching to VTI is good, but also examine why you got into MGK initially - was it chasing large growth companies?  If you learn that about yourself, you might be less tempted to do it again, which can help your returns in the long run.

Since I also do market timing, I'll say that inflation is hurting tech stocks.  Fast growth means earnings are mostly years in the future, which is hit the hardest by inflation going up.  In a recovery, tech stocks (Netflix, Amazon) take another hit as people aren't forced to order online and watch Netflix - they can go outside, and travel.  I expect another hit to tech stocks as the recovery unfolds.  But that's just how I view things for that 2% you have in Robinhood.

Invester17

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Re: Difficulty dealing with the emotional swings of investing
« Reply #12 on: March 25, 2021, 10:54:08 AM »
All good feedback.

240k is just from work income so the rentals are in addition to that income.

Actions:
- Close Robinhood
- Stop looking at Personal Capital
- Leverage a broad index such as VTI, buy & hold across my portfolio and never look at it.

Sounds simple in theory, but I suppose I lack discipline so I'll have to get creative.

ChpBstrd

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Re: Difficulty dealing with the emotional swings of investing
« Reply #13 on: March 25, 2021, 11:14:36 AM »
At age 30, every 2% or 3% down day seems like a life-defining moment. It'll take decades of experience to not shart oneself in times like 2000, 2008, 2018, or 2020. It may be possible to accelerate the process by playing market timing games like this one a few hundred times and tracking one's results on a spreadsheet:

https://engaging-data.com/market-timing-game/

It's important to learn that investing is absolutely different than any other domain in life. More effort = worse results. More application of logic and evidence = worse results. More helpful suggestions from other people = worse results. More intelligence may even lead to worse results.

But overall, if you are making 240k/year, it will not be market returns that cause you to achieve FIRE. Any amount of attention you can give to maintaining those earnings and your savings rate - even relaxing so you don't burn out - is time better spent than fiddling with investments. You are rich, and as a rich person you're just going to have to accept regular six-figure fluctuations in your net worth. This is practice for accepting seven-figure fluctuations later. That's what it means to be rich. Your RE fluctuates too; you just don't get a daily quote from a liquid marketplace.

It can be very hard to accept that one will never be "good at" investing, stock picking, or market timing. One's ego tends to get in the way, especially when one is very good in another domain such as academics, leadership, earning money at work, etc. Nonetheless it is true. None of us are "good at" investing unless we can point to a decade of above-index returns achieved with a lower Sharpe ratio. Many of us are "lucky" for getting in/out of the right stocks at exactly the right time, but luck doesn't last.

JetBlast

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Re: Difficulty dealing with the emotional swings of investing
« Reply #14 on: March 25, 2021, 11:16:48 AM »

Finally, and probably most importantly, get rid of Robinhood and Personal Capital. I'm serious. Stop looking at your accounts and your investments will do better[/url].

This. Itís easier for investors with a lower risk tolerance to stay the course if they see a ticker showing VTI down 2.00 or 1%, rather than logging into their account and seeing it showing losses of thousands of dollars in a day.

Iím reminded of that apocryphal Fidelity study that the groups of investors that did best overall were either dead, had forgotten their login information, or had forgotten they had an account at Fidelity.

ChpBstrd

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Re: Difficulty dealing with the emotional swings of investing
« Reply #15 on: March 25, 2021, 11:42:58 AM »

Finally, and probably most importantly, get rid of Robinhood and Personal Capital. I'm serious. Stop looking at your accounts and your investments will do better[/url].

This. Itís easier for investors with a lower risk tolerance to stay the course if they see a ticker showing VTI down 2.00 or 1%, rather than logging into their account and seeing it showing losses of thousands of dollars in a day.

Iím reminded of that apocryphal Fidelity study that the groups of investors that did best overall were either dead, had forgotten their login information, or had forgotten they had an account at Fidelity.

On another post I saw a poster commenting that someone else could do really well by making the opposite trades compared to what they did. Another poster chimed in that this was already occurring, because RobinHood's business model is to sell their customers' trading data to other market participants who presumably make the opposite moves.

I had long ago contemplated betting against the stocks that appear in bullish Yahoo Finance articles. These usually tank within days, lol.

Side note: How does one buy data from RobinHood? It sounds like they are sitting on a gold mine.

reeshau

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Re: Difficulty dealing with the emotional swings of investing
« Reply #16 on: March 25, 2021, 12:31:46 PM »
Side note: How does one buy data from RobinHood? It sounds like they are sitting on a gold mine.

This is the whole pay for order flow thing.  They don't buy data from Robinhood, they pay to be their market maker, and act on the data directly.  (i.e. microseconds before it becomes fact)

As fishy as that sounds, it is why their customers have $0 trades.  As the old adage from social media says, "if you get it for free, you aren't the customer, you're the product."

norajean

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Re: Difficulty dealing with the emotional swings of investing
« Reply #17 on: March 25, 2021, 01:34:45 PM »
Eliminate all your online access and just read the quarterly paper statements.

SwordGuy

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Re: Difficulty dealing with the emotional swings of investing
« Reply #18 on: March 25, 2021, 03:59:44 PM »
Eliminate all your online access and just read the quarterly paper statements.

Good advice.

I'll be blunt (well meaning but blunt!) on an alternative.

Or you could just learn that your thinking is dead wrong and fix your thinking.   I suggest reading JL Collins' Stock Series.    Then read it again.   

Today's price on stocks DOES NOT MATTER if you are not selling today.   It only matters when you are selling.   With your income and your rental property/housing situation, you don't need to sell stock (unless you want to buy another rental with it and you can control when and for how much you make that choice).

When are you planning to retire?    One to four years before that point is when you want to start to reduce volatility for the first 5-8 years after retirement.  Until then, the market being down means STOCKS ARE ON SALE.   As I said, your thinking is wrong.  You are viewing that portfolio balance like cash in the bank and it's NOT.   It's shares in a company.  Whether today's price goes up or down, you still own the same shares.

We're retired and our net worth varied by half a million US dollars over the last year.   Meh.   It was no big deal.   And we're richer today than we were at the start of last year.   And we don't even have a someone handing us nearly a QUARTER OF A MILLION DOLLARS in wage income each year.   What the heck are you stressing about?   Relax.  Chill.   

Enjoy.   You are not living a life of scarcity.   You are living in a life of abundance and your cup runneth over.   

I don't know what your desired FI expenditure is but if it's at all reasonable you'll be there really fast.   You have the assets to support an income of about $30k a year using the 4% rule plus you have the spend equivalent of a paid off house.    Check out Justin at www.RootOfGood.com for an idea about what a nice life someone can have on an income of $40k a year in similar circumstances.   You could easily be at that point in a year -- even if the market crashes big time you could make it in 3 max.

bthewalls

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Re: Difficulty dealing with the emotional swings of investing
« Reply #19 on: March 25, 2021, 04:00:05 PM »
All good feedback.

240k is just from work income so the rentals are in addition to that income.

Actions:
- Close Robinhood
- Stop looking at Personal Capital
- Leverage a broad index such as VTI, buy & hold across my portfolio and never look at it.

Sounds simple in theory, but I suppose I lack discipline so I'll have to get creative.

Sit with the discomfort my friend...stop looking at market and read some demello or Alan watts....your problem is thereís nothing wrong and you are creating your own issue.....beware of investing neurosis (have done that myself)....learn to fly fish...

Iím glad Iím not your age.....

Invester17

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Re: Difficulty dealing with the emotional swings of investing
« Reply #20 on: March 25, 2021, 04:06:56 PM »
Eliminate all your online access and just read the quarterly paper statements.

Good advice.

I'll be blunt (well meaning but blunt!) on an alternative.

Or you could just learn that your thinking is dead wrong and fix your thinking.   I suggest reading JL Collins' Stock Series.    Then read it again.   

Today's price on stocks DOES NOT MATTER if you are not selling today.   It only matters when you are selling.   With your income and your rental property/housing situation, you don't need to sell stock (unless you want to buy another rental with it and you can control when and for how much you make that choice).

When are you planning to retire?    One to four years before that point is when you want to start to reduce volatility for the first 5-8 years after retirement.  Until then, the market being down means STOCKS ARE ON SALE.   As I said, your thinking is wrong.  You are viewing that portfolio balance like cash in the bank and it's NOT.   It's shares in a company.  Whether today's price goes up or down, you still own the same shares.

We're retired and our net worth varied by half a million US dollars over the last year.   Meh.   It was no big deal.   And we're richer today than we were at the start of last year.   And we don't even have a someone handing us nearly a QUARTER OF A MILLION DOLLARS in wage income each year.   What the heck are you stressing about?   Relax.  Chill.   

Enjoy.   You are not living a life of scarcity.   You are living in a life of abundance and your cup runneth over.   

I don't know what your desired FI expenditure is but if it's at all reasonable you'll be there really fast.   You have the assets to support an income of about $30k a year using the 4% rule plus you have the spend equivalent of a paid off house.    Check out Justin at www.RootOfGood.com for an idea about what a nice life someone can have on an income of $40k a year in similar circumstances.   You could easily be at that point in a year -- even if the market crashes big time you could make it in 3 max.

I appreciate this post a lot, thank you. I had to Google investing neurosis, but it sounds spot on.

bthewalls

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Re: Difficulty dealing with the emotional swings of investing
« Reply #21 on: March 26, 2021, 03:50:00 PM »
Investing neurosis is my own term....Happy to share it with you lol.

Turn off the laptop, for 6month.

I went thru this recently and some old timers here told me the same...

vand

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Re: Difficulty dealing with the emotional swings of investing
« Reply #22 on: March 27, 2021, 02:48:11 AM »
The only thing that is going to help dampen your emotional swings of the market is.. holding less of the stock market.

Sell some shares. Buy bonds and a bit of gold. These help stabilize your portfolio.

This is what the topic of asset allocation is all about - building a portfolio that suits your personal emotional tolerances.

It's all very well being told to check your portfolio less often but that doesn't actually drill down into the psychological reason *why* you are compelled to it so frequently

100% stock portfolio is unsuitable for many people not because of the mathematical risk, but because it ties their identity to a single asset class and they develoo an unbalanced view of things.
« Last Edit: March 27, 2021, 02:54:48 AM by vand »

Malcat

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Re: Difficulty dealing with the emotional swings of investing
« Reply #23 on: March 27, 2021, 09:58:10 AM »
Take a long break from looking at your investment balanced, which are truly meaningless at this point in and, and will continue to be meaningless until you are close to retirement. They literally don't matter and are entirely imaginary numbers unless and until you do something with them. Those numbers do literally nothing for you, so why are you giving them so much weight in your day. 

I genuinely don't even know what my account balances are, but I don't have any of my emotional state of being tied up in them.

Take some time to get to know yourself better. Dig into the "why" of looking at those numbers, the unmet need you are trying to satisfy, the fear basis of your behavior.

This is a compulsive, neurotic behaviour like any other. Try to understand where it's coming from. It's not a given that you have to continue existing this way, it's really not that hard to change behavioural patterns once you understand them.

Invester17

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Re: Difficulty dealing with the emotional swings of investing
« Reply #24 on: March 27, 2021, 12:10:40 PM »
The hard part is making $5k in income one month (as an example) and I don't have any needs so I dump that $5k into the market and then the next day I lose that and more. Psychologically that's the hard part of me to grapple with. The latest example shown here was my Vanguard was at 427k after recently depositing 26k and it's now at 389k. I know (one day) it will go back up (and higher) but that's hard short term emotionally to deal with (I lose sleep over it and it causes tension in my day to day life where I'm a bit more irritable when the market is down vs. up).

I think I get the message here though, what I bought (shares) with that 26k is still there it's just "currently" not valued at what it was, but it will be later. I can modify my asset allocation to be more conservative, but in return for lower returns. I'm logical enough to know I want the higher returns (at least tracking the total stock market), but not very good at handling the swings at the same time.

Here is my new/auto-pilot plan, leveraging tax deferred accounts for fixed income.

401k
Automatically invest per pay period, give or take $2000 per month. 70% Fidelity Total Stock Market & 30% Fidelity Total Bond (updated based on feedback and investment risk appetite)

Vanguard
Automatically invest $1000 per month. 100% Vanguard Total Stock Market Admiral Index

HSA
Automatically invest per pay period, give or take $525 a month. 100% Vanguard Wellesley Admiral Fund (VWIAX)

Roth IRA
Manually invest maximum amount per year, backdoor IRA. 100% Vanguard Wellesley Admiral Fund (VWIAX)

Close Robinhood

Avoid reviewing Personal Capital

Any excess not invested I plan on saving for another rental property, I really like the consistent passive income of these investments vs. the stock market swings but I also don't want to be in just real estate.
« Last Edit: March 28, 2021, 08:16:41 AM by Invester17 »

Financial.Velociraptor

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Re: Difficulty dealing with the emotional swings of investing
« Reply #25 on: March 27, 2021, 12:24:47 PM »
If your portfolio makes you nervous, it is a sure sign your fixed income allocation is too low.  With a 240k salary, you might consider fed tax exempt closed end municipal bond funds.  IQI yields 4.84% and NEA yields 4.78%. 

Invester17

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Re: Difficulty dealing with the emotional swings of investing
« Reply #26 on: March 28, 2021, 07:47:09 AM »
If your portfolio makes you nervous, it is a sure sign your fixed income allocation is too low.  With a 240k salary, you might consider fed tax exempt closed end municipal bond funds.  IQI yields 4.84% and NEA yields 4.78%.

I'm going to go with 70% total stock market & 30% total bond market funds in my 401k.

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Re: Difficulty dealing with the emotional swings of investing
« Reply #27 on: March 28, 2021, 09:43:27 AM »
@Invester17 , You've received a lot of good advice. 


I don't know if this will help with your situation/issues, but I recently discovered the CNN "Fear & Greed index" meter.  It looks interesting, but I can't say whether it's actually useful for trading.


I like the name, "Fear & Greed" because those are the emotions that we're dealing with on both an individual & also a market-wide level.  Your gut gets nervous when the %'s turn red & happy when they turn green.  You're afraid to buy low because you don't know how low it will go.  You're encouraged to buy as it keeps on & on climbing, even though logic tells you that it will end somewhere. 


Maybe the Fear & Greed index meter will help you visually understand your emotions as the market moves.  Instead of being ruled by your emotions, you'll learn that it's part of the game. 


https://money.cnn.com/data/fear-and-greed/

Invester17

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Re: Difficulty dealing with the emotional swings of investing
« Reply #28 on: March 28, 2021, 10:40:39 AM »
@GreenEggs Definitely used that tool in the past ~ makes us feel as if we aren't alone. I should just double down on investing when everyone else is fearful.

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Re: Difficulty dealing with the emotional swings of investing
« Reply #29 on: March 28, 2021, 11:40:51 AM »
If your portfolio makes you nervous, it is a sure sign your fixed income allocation is too low.  With a 240k salary, you might consider fed tax exempt closed end municipal bond funds.  IQI yields 4.84% and NEA yields 4.78%.

I'm going to go with 70% total stock market & 30% total bond market funds in my 401k.
As a person much further down the road than you, I remember how much these swings hurt when I was just starting out. Back then, there were no apps for checking balances, so I imagine it's exponentially harder to turn it off nowadays.

Two thoughts: when the market is down, you are buying more shares, so divert your attention to your share balances, not the total dollars. You buy more shares faster when the market is down, aka "on sale". Share balances rise when prices fall, so it's acually a great soother. Trust me, I've ridden through plenty of downturns. Sometimes market crashes create great real estate opportunities, so that's something else to look forward to.

Next: I'd strongly encourage you to rethink your asset allocation. I believe it's too conservative. You own more real estate than the average bear, and your houses effectively serve as bonds, particularly if they're well mortgaged. So your overall AA isn't actually 70/30. You are also much earlier in your career path, so time in the market is going to work in your favor. Be aggressive now and in time you will feel even greater rewards, even if there are Big Dips along the way.

Invester17

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Re: Difficulty dealing with the emotional swings of investing
« Reply #30 on: March 28, 2021, 03:29:02 PM »
If your portfolio makes you nervous, it is a sure sign your fixed income allocation is too low.  With a 240k salary, you might consider fed tax exempt closed end municipal bond funds.  IQI yields 4.84% and NEA yields 4.78%.

I'm going to go with 70% total stock market & 30% total bond market funds in my 401k.
As a person much further down the road than you, I remember how much these swings hurt when I was just starting out. Back then, there were no apps for checking balances, so I imagine it's exponentially harder to turn it off nowadays.

Two thoughts: when the market is down, you are buying more shares, so divert your attention to your share balances, not the total dollars. You buy more shares faster when the market is down, aka "on sale". Share balances rise when prices fall, so it's acually a great soother. Trust me, I've ridden through plenty of downturns. Sometimes market crashes create great real estate opportunities, so that's something else to look forward to.

Next: I'd strongly encourage you to rethink your asset allocation. I believe it's too conservative. You own more real estate than the average bear, and your houses effectively serve as bonds, particularly if they're well mortgaged. So your overall AA isn't actually 70/30. You are also much earlier in your career path, so time in the market is going to work in your favor. Be aggressive now and in time you will feel even greater rewards, even if there are Big Dips along the way.

Great insight, I will say on the property front I look at the return based on the cash flow vs. appreciation. As an example, I put 45k into a house that produces a little over $500 a month (14% return YoY on my initial investment that grows as rent increases, rough math obviously there is more to it in terms of repairs, turnover etc). Appreciation and equity build up are a bonus for me.

I like your take on shares vs. value, that helps. I don't disagree it might be conservative, but in a way I'm trying to protect myself from selling by smoothing out the ride.

« Last Edit: March 28, 2021, 04:32:25 PM by Invester17 »

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Re: Difficulty dealing with the emotional swings of investing
« Reply #31 on: March 28, 2021, 06:31:26 PM »
If your portfolio makes you nervous, it is a sure sign your fixed income allocation is too low.  With a 240k salary, you might consider fed tax exempt closed end municipal bond funds.  IQI yields 4.84% and NEA yields 4.78%.

I'm going to go with 70% total stock market & 30% total bond market funds in my 401k.
As a person much further down the road than you, I remember how much these swings hurt when I was just starting out. Back then, there were no apps for checking balances, so I imagine it's exponentially harder to turn it off nowadays.

Two thoughts: when the market is down, you are buying more shares, so divert your attention to your share balances, not the total dollars. You buy more shares faster when the market is down, aka "on sale". Share balances rise when prices fall, so it's acually a great soother. Trust me, I've ridden through plenty of downturns. Sometimes market crashes create great real estate opportunities, so that's something else to look forward to.

Next: I'd strongly encourage you to rethink your asset allocation. I believe it's too conservative. You own more real estate than the average bear, and your houses effectively serve as bonds, particularly if they're well mortgaged. So your overall AA isn't actually 70/30. You are also much earlier in your career path, so time in the market is going to work in your favor. Be aggressive now and in time you will feel even greater rewards, even if there are Big Dips along the way.

Great insight, I will say on the property front I look at the return based on the cash flow vs. appreciation. As an example, I put 45k into a house that produces a little over $500 a month (14% return YoY on my initial investment that grows as rent increases, rough math obviously there is more to it in terms of repairs, turnover etc). Appreciation and equity build up are a bonus for me.

I like your take on shares vs. value, that helps. I don't disagree it might be conservative, but in a way I'm trying to protect myself from selling by smoothing out the ride.

I think you are taking the right approach. Dicey is 100% correct, but that's only if you can trust yourself not to sell. If you can't ignore the swings and panic sell, you very well could put yourself in a worse situation than if you held 70/30.

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Re: Difficulty dealing with the emotional swings of investing
« Reply #32 on: March 28, 2021, 06:36:10 PM »
If your portfolio makes you nervous, it is a sure sign your fixed income allocation is too low.  With a 240k salary, you might consider fed tax exempt closed end municipal bond funds.  IQI yields 4.84% and NEA yields 4.78%.

I'm going to go with 70% total stock market & 30% total bond market funds in my 401k.
As a person much further down the road than you, I remember how much these swings hurt when I was just starting out. Back then, there were no apps for checking balances, so I imagine it's exponentially harder to turn it off nowadays.

Two thoughts: when the market is down, you are buying more shares, so divert your attention to your share balances, not the total dollars. You buy more shares faster when the market is down, aka "on sale". Share balances rise when prices fall, so it's acually a great soother. Trust me, I've ridden through plenty of downturns. Sometimes market crashes create great real estate opportunities, so that's something else to look forward to.

Next: I'd strongly encourage you to rethink your asset allocation. I believe it's too conservative. You own more real estate than the average bear, and your houses effectively serve as bonds, particularly if they're well mortgaged. So your overall AA isn't actually 70/30. You are also much earlier in your career path, so time in the market is going to work in your favor. Be aggressive now and in time you will feel even greater rewards, even if there are Big Dips along the way.

Great insight, I will say on the property front I look at the return based on the cash flow vs. appreciation. As an example, I put 45k into a house that produces a little over $500 a month (14% return YoY on my initial investment that grows as rent increases, rough math obviously there is more to it in terms of repairs, turnover etc). Appreciation and equity build up are a bonus for me.

I like your take on shares vs. value, that helps. I don't disagree it might be conservative, but in a way I'm trying to protect myself from selling by smoothing out the ride.

I think you are taking the right approach. Dicey is 100% correct, but that's only if you can trust yourself not to sell. If you can't ignore the swings and panic sell, you very well could put yourself in a worse situation than if you held 70/30.

Exactly, people always say that adjusting your AA is the answer, but that's not necessarily true if the fear underlying the behaviour is irrational or compulsive. In which case, it's far more important to address the underlying issues motivating the behaviour.

You can't AA your way out of irrationality.

ChpBstrd

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Re: Difficulty dealing with the emotional swings of investing
« Reply #33 on: March 30, 2021, 03:54:19 PM »
One issue is that we anchor on dollars as our points system to track whether we are doing the right things or not.

Our brokerage account values are quoted in dollars, our "net worth" is in dollars, our salaries are in dollars, and we think about retirement as a requirement for dollars at various times. This is a very lower/middle class way of thinking, rooted more in paycheck-to-paycheck culture than an entrepreneurship mindset.

We should be thinking in terms of the earnings streams we are buying. It is earnings that will support the asset's price in the future. Earnings will pay for buybacks and dividends. To retire, we need assets that will deliver decades of earnings, not a safety fund that might last 2 years. We seek to trade dollars for businesses that will earn profits for us in the distant future, not hoard or protect dollars.

When we try to hoard or protect dollars, we end up in "defensive" investments with no real return or we end up doing value destroying trades. Examples of value destroying trades include buying high and selling low, which destroys cash, or selling low and buying high, which destroys shares. Either move is a loss, accounted for in different units!

The alternative mindset is something like,

Code: [Select]
I want to reach a "FIRE number" of 3,600 shares of SPY, because SPY represents about $14 in earnings growing at 6-7% per year, and I expect to make sustainable regular exchanges from this position to dollars to cover my $50k spend rate during retirement, after adjustment for inflation.
or...

Code: [Select]
I want to own and operate rental properties generating $50k a year in NOPAT to cover my $50k spend rate during retirement, after adjustment for inflation.
or...

Code: [Select]
I want to own an REIT and preferred shares portfolio with a real yield of 5% to cover my...
or, even better, own portions of all the above with a plan for each to cover a percentage of the spending needs.

When the exchange rate between dollars and stocks fluctuates, we don't necessarily have to care any more than when the exchange rate between yen and euros fluctuates. It does not really change our odds of successful retirement unless we engage in value destroying trades. If our assets are currently selling for 5% less than what we paid for them, we did not "lose" $50,000 unless we convert all our shares back to cash. We still have the same earnings streams we originally bought - the shares. Did you know the US dollars in your checking account and brokerage depreciated 10% against the Swedish krona in the past 12 months? It seriously doesn't matter unless one trades on that emotion of loss.

In terms of whether or not our assets will support a steady stream of withdraws throughout a 40 year retirement, the month-to-month 10% swings are noise driven by analysts' ever-changing earnings estimates. Thus we should strive to accumulate shares, not dollars.
« Last Edit: April 01, 2021, 07:55:22 PM by ChpBstrd »

CrankAddict

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Re: Difficulty dealing with the emotional swings of investing
« Reply #34 on: March 30, 2021, 09:06:16 PM »
OP, I used to feel like you, super bummed on the down days and euphoric on the up days.  Now I don't ever have either feeling and I don't even know which days are which.  I used to always try to devise "smart" strategies for when and what to buy/sell and as a result almost always felt like I had bad luck and terrible timing. 

Then I decided that I absolutely hate gambling, and made all of this about as exciting as paying the electric bill.  The last business day of every month I contribute the max amount to my 401k (70/30 vtsax/vbtlx) and I put another fixed amount into my taxable vanguard account.  Half of that is vtsax and half is a tax exempt bond fund. 

To be clear, I would never claim this formula is the golden ticket in terms of maximizing returns, but wow is it the perfect recipe for carefree investing.  The thing I focus my satisfaction on 100% is actually making the contributions.  Don't care about the "gains" as they are virtual.  But the contributions are real and provide a steady stream of good feelings.  If you can make that mental shift I think you can alleviate a lot of the stress.  Some guys like to gamble so this would bore them to tears.  If you handed me $100 to spend at a casino I'd rather hand it to somebody else and walk out than suffer through blowing it on games of chance.

Sent from my SM-G960U1 using Tapatalk


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Re: Difficulty dealing with the emotional swings of investing
« Reply #35 on: March 31, 2021, 03:03:22 AM »
If your portfolio makes you nervous, it is a sure sign your fixed income allocation is too low.  With a 240k salary, you might consider fed tax exempt closed end municipal bond funds.  IQI yields 4.84% and NEA yields 4.78%.

I'm going to go with 70% total stock market & 30% total bond market funds in my 401k.
As a person much further down the road than you, I remember how much these swings hurt when I was just starting out. Back then, there were no apps for checking balances, so I imagine it's exponentially harder to turn it off nowadays.

Two thoughts: when the market is down, you are buying more shares, so divert your attention to your share balances, not the total dollars. You buy more shares faster when the market is down, aka "on sale". Share balances rise when prices fall, so it's acually a great soother. Trust me, I've ridden through plenty of downturns. Sometimes market crashes create great real estate opportunities, so that's something else to look forward to.

Next: I'd strongly encourage you to rethink your asset allocation. I believe it's too conservative. You own more real estate than the average bear, and your houses effectively serve as bonds, particularly if they're well mortgaged. So your overall AA isn't actually 70/30. You are also much earlier in your career path, so time in the market is going to work in your favor. Be aggressive now and in time you will feel even greater rewards, even if there are Big Dips along the way.

Great insight, I will say on the property front I look at the return based on the cash flow vs. appreciation. As an example, I put 45k into a house that produces a little over $500 a month (14% return YoY on my initial investment that grows as rent increases, rough math obviously there is more to it in terms of repairs, turnover etc). Appreciation and equity build up are a bonus for me.

I like your take on shares vs. value, that helps. I don't disagree it might be conservative, but in a way I'm trying to protect myself from selling by smoothing out the ride.

I think you are taking the right approach. Dicey is 100% correct, but that's only if you can trust yourself not to sell. If you can't ignore the swings and panic sell, you very well could put yourself in a worse situation than if you held 70/30.


Yea I agree. Everything Dicey said is 100% spot on. BUT if your freaking out now you'll freak it more. And the point with your salary probably going to get you across the finish line faster as long as your sensible , perhaps work into a more risk portfolio like 70/30 once you temper your emotion swings.

vand

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Re: Difficulty dealing with the emotional swings of investing
« Reply #36 on: April 01, 2021, 12:50:46 PM »
This is one of the big drawbacks that many people have with investing in paper assets that trade all round the world and all round the clock, with the price constantly moving up and down.  It's all very well knowing that you own 4000 units of a tracker fund... but it's not straightforward to link that with slices of real businesses with tangible assets that you can touch and feel.  To most people, they are are first and foremost numbers on a screen that you have attached your wealth onto, and by extension your wealth goes up and down with the randomness of those numbers.

OP doesn't get any anxiety from his rental investments because they are real and tangible, and their price isn't displayed on the front of every financial website so that you couldn't hide from it even if you wanted to, and its easy to understand how it all works. It's not easy to understand how Google or Goldman Sachs works.

It's also one of the reasons why personally I still like to buy individual shares. I can see the company I'm buying, walk into their stores, sample their products and their services for myself. Every time I see one of their company vans drive by I say to myself "he works for me".  A lot of that direct attachment to the business gets lost when you are just passively investing with trackers.
« Last Edit: April 01, 2021, 12:53:41 PM by vand »

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Re: Difficulty dealing with the emotional swings of investing
« Reply #37 on: April 01, 2021, 03:14:44 PM »
Great posts, especially the "code" one by @ChpBstrd!

@Invester17, on the psychology side, I do think it's worth pursuing the idea that the unpleasant repetitive behavior of checking prices is something to be worked on as an emotional question. Is it OCD, for example, with this being your particular form of it? It might take a bit of research to find a psychologist who isn't distracted by the wealth aspect, but finding one who can focus on the repetitive hard to control unpleasant piece might help a lot. Maybe you could combine that with the concrete modifications of your investing approach.


PDXTabs

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Re: Difficulty dealing with the emotional swings of investing
« Reply #38 on: April 03, 2021, 09:23:54 AM »
When the exchange rate between dollars and stocks fluctuates, we don't necessarily have to care any more than when the exchange rate between yen and euros fluctuates. It does not really change our odds of successful retirement unless we engage in value destroying trades. If our assets are currently selling for 5% less than what we paid for them, we did not "lose" $50,000 unless we convert all our shares back to cash. We still have the same earnings streams we originally bought - the shares. Did you know the US dollars in your checking account and brokerage depreciated 10% against the Swedish krona in the past 12 months? It seriously doesn't matter unless one trades on that emotion of loss.

In terms of whether or not our assets will support a steady stream of withdraws throughout a 40 year retirement, the month-to-month 10% swings are noise driven by analysts' ever-changing earnings estimates. Thus we should strive to accumulate shares, not dollars.

This is very much how I learned to view my portfolio after a few years of market gyration. So much so that when the market goes down now I get excited for all the extra shares I will be buying.

chasesfish

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Re: Difficulty dealing with the emotional swings of investing
« Reply #39 on: April 03, 2021, 02:21:36 PM »
@Invester17

Some people can tolerate marketable investments being "marked to market" every day/hour/minute/second. 

Other people can't.

In my professional experience, real estate people really struggle with this.  There's not a portal you can log into and see exactly what someone would pay for your properties at auction with cash deliverable in two days.  You actually have to run that process, vs. market investments that'll give you immediate feedback.

You can stick with cash, rentals, and real estate syndications and get to FI without the feedback loop you're struggling with.  Just know you're not alone.

   

vand

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Re: Difficulty dealing with the emotional swings of investing
« Reply #40 on: April 04, 2021, 02:41:35 AM »
@Invester17

Some people can tolerate marketable investments being "marked to market" every day/hour/minute/second. 

Other people can't.

In my professional experience, real estate people really struggle with this.  There's not a portal you can log into and see exactly what someone would pay for your properties at auction with cash deliverable in two days.  You actually have to run that process, vs. market investments that'll give you immediate feedback.

You can stick with cash, rentals, and real estate syndications and get to FI without the feedback loop you're struggling with.  Just know you're not alone.

 

Totally agree with this.

Articles comparing houses vs stocks tend to focus on measurable things like returns, leverage, taxes, etc, but I'd argue that one of the biggest but also most often glossed over differences between investing in real estate and paper assets is the blissful ignorance that having no active market makes your feel about your assets.

As houses are not homogenous, you alone create the market for your property and price discovery is only engaged when you decide to sell or buy. 

This makes a huge difference to how you feel when holding that asset, and how you feel about your investments is at least as important as the return it is generating, because that is what drives investor behaviour which trumps everything else. 

And in a way it doesn't matter as much in real estate, where the focus is much more about cashflow than capital appreciation.

« Last Edit: April 04, 2021, 02:44:04 AM by vand »

Invester17

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Re: Difficulty dealing with the emotional swings of investing
« Reply #41 on: April 04, 2021, 03:45:01 PM »
Really appreciate everyone taking the time to post. It's been extremely helpful. The one thing I realized recently is I wasn't using my Vanguard brokerage properly. My most recent emotional swing when tech sold off was given the fact that I just contributed a large sum of money that was from a big income check that was already in my mind to be deployed on real estate. After only a few days it was "gone" not by shares but by dollars. The first problem is that I was using funds I needed short term in an account that should  be designed for long term investing. The second part was simply because my emotional connection to the work I put into that income and then losing it so easily, essentially for me it was like putting 25k on red on the roulette table and losing it immediately.

Ultimately, I'm in a better place. I've got a long-term horizon on my stock investments, everything is setup to contribute monthly in a much more balanced approach. The asset allocation while more conservative will help me long-term stay invested in return for slightly less returns (which in a way will increase my returns for not buying/selling on a whim).

My hope is that we rally a bit in April so I can pull some of my money out of the Vanguard account to put that back into cash for it's original intended purchase - a new rental property. Again, new money is automatically invested and everything else will get funneled into my savings for the next property so I don't get stuck in this same situation.


reeshau

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Re: Difficulty dealing with the emotional swings of investing
« Reply #42 on: April 04, 2021, 04:51:36 PM »
Really appreciate everyone taking the time to post. It's been extremely helpful. The one thing I realized recently is I wasn't using my Vanguard brokerage properly. My most recent emotional swing when tech sold off was given the fact that I just contributed a large sum of money that was from a big income check that was already in my mind to be deployed on real estate. After only a few days it was "gone" not by shares but by dollars. The first problem is that I was using funds I needed short term in an account that should  be designed for long term investing. The second part was simply because my emotional connection to the work I put into that income and then losing it so easily, essentially for me it was like putting 25k on red on the roulette table and losing it immediately.

Ultimately, I'm in a better place. I've got a long-term horizon on my stock investments, everything is setup to contribute monthly in a much more balanced approach. The asset allocation while more conservative will help me long-term stay invested in return for slightly less returns (which in a way will increase my returns for not buying/selling on a whim).

My hope is that we rally a bit in April so I can pull some of my money out of the Vanguard account to put that back into cash for it's original intended purchase - a new rental property. Again, new money is automatically invested and everything else will get funneled into my savings for the next property so I don't get stuck in this same situation.

That sounds like a healthy approach--lesson learned.  Good luck in the future!

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Re: Difficulty dealing with the emotional swings of investing
« Reply #43 on: April 04, 2021, 10:16:11 PM »
Really appreciate everyone taking the time to post. It's been extremely helpful. The one thing I realized recently is I wasn't using my Vanguard brokerage properly. My most recent emotional swing when tech sold off was given the fact that I just contributed a large sum of money that was from a big income check that was already in my mind to be deployed on real estate. After only a few days it was "gone" not by shares but by dollars. The first problem is that I was using funds I needed short term in an account that should  be designed for long term investing. The second part was simply because my emotional connection to the work I put into that income and then losing it so easily, essentially for me it was like putting 25k on red on the roulette table and losing it immediately.

Ultimately, I'm in a better place. I've got a long-term horizon on my stock investments, everything is setup to contribute monthly in a much more balanced approach. The asset allocation while more conservative will help me long-term stay invested in return for slightly less returns (which in a way will increase my returns for not buying/selling on a whim).

My hope is that we rally a bit in April so I can pull some of my money out of the Vanguard account to put that back into cash for it's original intended purchase - a new rental property. Again, new money is automatically invested and everything else will get funneled into my savings for the next property so I don't get stuck in this same situation.

Bravo!   You're definitely on the right track!   

des999

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Re: Difficulty dealing with the emotional swings of investing
« Reply #44 on: April 05, 2021, 06:47:24 AM »
At age 30, every 2% or 3% down day seems like a life-defining moment. It'll take decades of experience to not shart oneself in times like 2000, 2008, 2018, or 2020. It may be possible to accelerate the process by playing market timing games like this one a few hundred times and tracking one's results on a spreadsheet:

https://engaging-data.com/market-timing-game/

It's important to learn that investing is absolutely different than any other domain in life. More effort = worse results. More application of logic and evidence = worse results. More helpful suggestions from other people = worse results. More intelligence may even lead to worse results.

But overall, if you are making 240k/year, it will not be market returns that cause you to achieve FIRE. Any amount of attention you can give to maintaining those earnings and your savings rate - even relaxing so you don't burn out - is time better spent than fiddling with investments. You are rich, and as a rich person you're just going to have to accept regular six-figure fluctuations in your net worth. This is practice for accepting seven-figure fluctuations later. That's what it means to be rich. Your RE fluctuates too; you just don't get a daily quote from a liquid marketplace.

It can be very hard to accept that one will never be "good at" investing, stock picking, or market timing. One's ego tends to get in the way, especially when one is very good in another domain such as academics, leadership, earning money at work, etc. Nonetheless it is true. None of us are "good at" investing unless we can point to a decade of above-index returns achieved with a lower Sharpe ratio. Many of us are "lucky" for getting in/out of the right stocks at exactly the right time, but luck doesn't last.

very very good post.  agree completely.

vand

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Re: Difficulty dealing with the emotional swings of investing
« Reply #45 on: April 05, 2021, 07:35:08 AM »
My hope is that we rally a bit in April so I can pull some of my money out of the Vanguard account to put that back into cash for it's original intended purchase - a new rental property. Again, new money is automatically invested and everything else will get funneled into my savings for the next property so I don't get stuck in this same situation.

Yeah.. don't do that. Don't *hope* for the market to do something when it has just as much chance of doing the opposite.  It's basically a coin flip over short periods of time whether the market will be higher or lower.  If you want the money to invest into your next real estate project then just take it out right now and get on with it. Who cares if it is down - don't take it personally. Take a small loss and move on.

Your money should never have been put into the stock market anyway unless you were happy to leave it there for 5-10 years.

LateStarter

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Re: Difficulty dealing with the emotional swings of investing
« Reply #46 on: April 05, 2021, 08:47:59 AM »
I find that framing the issue differently can help me detach from it, worry less, and resist the urge to fiddle/interfere.

It was easy when I was working: when stocks were high my account looked good; and when stocks were low I got a better bargain with my (automatic) monthly purchases. Any movement had a positive side to it. I knew I was partly fooling myself but this slightly skewed viewpoint was good enough to keep my emotions in check and my fingers off the buy/sell buttons.

Since FIRing last year I have found it much more difficult to stomach falling stock prices or the prospect of such. There isn't a positive side - I'm no longer a buyer - it's pure loss.

The way I (try to) think about it now is that; stock price movements are not a problem in themselves. Very few of my friends/family worry about them, monitor them, or even have any understanding of them. They couldn't care less about whether the market goes up or down because they have very little in the way of savings/investments so it doesn't affect them in any significant/obvious way. My "problem" is that I've accumulated a decent amount of savings/investments. Poor me . . . if only I didn't have so much money to worry about!! It seems like a classic MPP from this perspective and that helps me detach from it, leave it be, and move on to something more useful . . . most of the time . . .