Posted by Ryan on March 10th, 2008 in Investment Strategy

Everyone is freaking out about the volatility in the stock market, but the long-term wealth creator should not even be looking at their portfolio on a daily basis. Nor should they care what the market does today or what it will do tomorrow. Investment fortunes are made over the long run not overnight.

This was explained in my Special Report, 10 Mistakes Every Investor Makes and How to Avoid Them, which you can get for free by subscribing to In the Money newsletter.

With all of the discussion of the economic stimulus package and the obsessive news about the outlook of the economy, it’s nearly impossible to avoid being influenced by the panic. My suggestion . . . turn off the TV and remind yourself that you make money with equities markets when you go against the crowd.

It’s tough psychologically to act in a way that seems counterintuitive when it has to do with your hard earned money, but if you want to be successful with investing you must take the emotion out of your decisions. Think of it this way, if everyone was right, wouldn’t everyone be rich? More likely nobody would be rich.

While you’re checking your 401k and your heart starts to race from looking at the bright red ink and the big negative numbers, tell yourself this is a good thing. You are now buying more shares with the same amount of money. In other words, where a $100 might have about you 10 shares of a mutual fund, you are now buying 15 shares. So keep plowing money into your 401k. That’s how I’m playing the stock market.

These downturns and fluctuations we’re experiencing, otherwise known as volatility, are a good thing. Without the movement in the market, stocks would never go up in price, and nobody would ever make money. Likewise, they would never go down and present once in a lifetime buying opportunities. Without volatility there would be no risk, which would yield no capital gains.

In the short-term, volatility should be a non-issue, particularly if you have an account set up to invest on a regularly monthly basis. By evenly spreading out purchases, you take advantage of dollar-cost-averaging, which limits your risk. Over the long run, the level of volatility decreases and the trend in your portfolio increases.

As discussed in Looking Forward to a Recession, the downturns in the stock market give long term investors great opportunities to make enormous amounts of wealth. You have the ability to buy equities as they are going down and the luxury to wait it out. Over a period of 10 or more years, the long term investor will be very happy with their earnings.

However, during downturns like these it is even more critical to protect your downside and limit your expenses as much as possible. Thanks to Zecco.com, you can now do this by buy stocks for free.

Millionaire Money Habit: Volatility in the market is necessary and good for a wealth investor. While the violent day-to-day movements in the market and the hysteria created by the media create panic and doubt in the stock market, remember to take your emotions out of your investment decisions and look at the historic data that indicates the stock market increases in value over time. -RT
photo by azrainman

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