One of the most important things to consider when you’re investing is the question of when you’ll need the money. If you need it next year, you should invest far differently than if you need it 20 years from now.
If you’re invested in hundreds or thousands of stocks all over the world, and the money is for an event 20 years from now (say, retirement), you can worry less about losing it all. With that kind of diversification, risk becomes in part a function of time. The odds of all the companies in your portfolio going to zero is pretty low. It could happen, but if it did, we’re all moving to the hills to grow our own vegetables anyway.
We know the market will go up and down in the short term, yet people sometimes worry anyway about that fluctuation even if they don’t need the money for 20 years. Here are a few reasons why.
1. You’re not confident in your investment process.
If your portfolio is based on a thoughtful approach that relies on the best academic evidence we have, then it can be easier to stick with the long-term plan when things get scary in the short term. On the other hand, if what you own is a collection of random mutual funds instead of a well-designed, broadly diversified portfolio, it’s easy to get spooked. You start to wonder if the reason you’re losing money has something to do with the investment instead of just the normal ups and downs of the market.
read the complete article here: Five (Bad) Reasons You’re Worrying About the Markets – NYTimes.com.