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Overcoming Financial Fear: Hunkering Down

For as long as I can remember, I have been a person that you would generally call “Risk averse.” As such, I often fall prey to a very simple blunder that consumers and companies alike make: Letting fear and worry dictate their actions instead of doing what you know is right.

In terms of finance, the recent downfall of the U.S. stock market and, indeed, markets worldwide, has continued to shake the resolve of even the most stalwart investor. Everyone is convinced that they are willing to ride out the ups and downs of the market, right up until the realize just how far down those downs are capable of going. 600 point drops on the Dow are going to happen, especially in an age of economic uncertainty.  The solution, then, is rationally gauging how capable you are of handling risk, and adjusting your portfolio accordingly.

Going with a less aggressive portfolio composition shouldn’t be considered a sign of weakness or a weak stomach, but rather an honest evaluation of your tolerance for volatility. If you know that you are going to hit the panic button once the Dow drops off a cliff and sell at the worst possible moment, you can protect yourself by changing your investments to something that better fits you and stop you from havinf to make that decision in the first place. This will take adjustments of your savings rate as well, since less-risky investments offer a less attractive rate of return, so you will need to save more as a result.  As always, consult with your financial advisor before making any changes to your portfolio, or whoever you happen to confide with for financial advice (ie. not me).

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