Right now in our economic climate, the word that keeps getting thrown around is recession. This is a word that scares most people and causes them to make emotional decisions out of fear that are irrational in nature. Some of the traditional behavior of the average Joe during a climate like this is to sell assets when they are crashing and take a loss out of fear. This is why most people fail at investing. They get emotional and in turn buy high and sell low. In many ways, a recession provides opportunity for those who are calculated and unemotional when it comes to finances. This, like almost everything else in the world, comes down to mindset.
The market is having a sale
Robert Kiyosaki, author of famed personal wealth building book Rich Dad Poor Dad, describes market crashes and downturns as the market having a “sale”. This is an interesting and very insightful way to look at this issue. When stock prices or real estate prices etc. fall, time and history have shown that the value of these assets will increase over time. Losses aren’t real until they’re realized by a sale or liquidation and many people don’t seem to understand this. If you look at the historical trends of the market as a whole, you’ll be able to clearly see this trend of economic upswing and downturn repeat itself time and time again. Those who leave emotion out of investing and instead use facts and information to make rational decisions will gain wealth, while those who use emotion and fear will not. It really is that simple. By learning to control the power of emotion, you give yourself the upper hand on your way to long-term wealth.
Learn to control emotion by sticking to the facts
“I just need to wait for the right time.” How many times have we heard these words from people we know, love, and care about? My guess is quite a few times! This phrase is just another way of masking fear and justifying this decision as it not being the right time to invest. For these people, the right time will likely never come. By turning off the news and ridding your life of all things designed to appeal to your fear emotionally, you will free yourself from the emotional shackles that you feel when you tune in to this kind of nonsense, namely their doom or gloom approach to the market. People are emotional creatures, especially when it comes to finances. No one wants to lose what they have worked so hard to achieve, and this position is definitely warranted and justified. If you wish to gain wealth for you and your children consisting of financial success that isn’t completely dependent on you trading time for money, recession-like markets are the ones where you will find the most success. Understanding the cyclic nature of the market and that if you are making sound and proven investments you will be rewarded handsomely is the absolute mindset shift you must have in order to obtain financial freedom.
Risks and Rewards
During recessions, people view investing in the market as “unpredictable and risky”. Luckily for us, we have literal centuries of data to support our hypothesis that asset prices will rebound in a big way so long as those assets are sound investment vehicles historically. It is at this point people begin to deal with a crossroad. “Do I invest now at a low price, or do I save my money because I’m afraid the market will continue to sink and never recover?” All you have to do to answer this question is google historical appreciation of the stock market or real estate and see that no matter what the market was doing at any time, the historical trend of the market is up. Now, after knowing this fact, what is more risky? Is it more risky to keep your money in cash to avoid complete market fallout that will never recover or to invest your cash into an appreciating asset low and hold it either forever or until when the market reaches a satisfactory return for you to sell? When I put it like that, the answer seems pretty obvious, at least to me. Do this analysis for yourself and come to your own conclusion. Ask yourself what you are comfortable doing and then take action on it. The wealthiest people make definite decisions and take action on them immediately. Are you an action taker, or are you going to sit on the sidelines while other people reach financial freedom? It could and should be you.