The cost of anxiety is too expensive, and many would agree with this, but perhaps few have an idea on how to go about reducing their financial anxiety.
Before attempting to reduce financial anxiety, we must identify its source.
In experience of interacting with different investors over the years, what’s observed is that anxiety chiefly stems from investor’s behaviour.
There are two predominant behaviour traits that lead to anxiety:
a) crystal ball gazing
b) and not focusing on processesMany investors who suffer from financial anxiety indulge in the futility of trying to predict the markets. Timing the market and consistently doing it is a near impossible task.
Investors can instead follow broad rules of thumb focused on asset allocation and diversification.
One can further customise the thumb rules to suit one’s requirements by appointing a financial advisor and taking his professional help.
Investors must focus on the processes and controlling the controllable and not worry too much about other things, for e.g., macroeconomic factors like interest rates, inflation and crude oil prices which are beyond one’s control.
The above will get an investor to behave in a certain manner, which has the potential to help one over the longer term and thus reduce financial anxiety.
Although, one cannot reduce financial anxiety completely because one’s goal posts change and just knowing and acknowledging that should reduce one’s stress.
Thus, the aim is to try to reduce financial challenges as best as possible.
1) Financial Plan:
In terms of specific actions, it is important to start with a well thought out financial plan that follows the correct sequence of household budgeting, protection, emergency savings and then investments.
2) Diversification:
Investors can look to diversify across as many different asset classes as possible (seven predominant asset class being equities, debt, gold, commodities, currency, real estate, and alternatives). This is important because it can help mitigate the downside risk in one’s overall portfolio.
3) Never disturb long-term compounding:
Apart from asset allocation and diversification, the third and most important action is to never disturb long-term compounding. Likely called it as the sequence of return risk. Consistency of returns matters over the longer term.
Once the compounding process is disturbed, it is much more difficult to get back on track and ultimately may lead to suboptimal results in one’s pursuit of achieving financial goals.
All the above – both in terms of behaviour and specific actionable – can help in reducing financial anxiety but needs to be combined with some of the non-financial aspects
First and foremost, taking care of one’s health is important.
Secondly, one should “invest in oneself”, meaning one should constantly look for ways and means to upgrade oneself in all aspects.
Thirdly, one should look at the quality of time saved.
If the above tasks seem onerous and add to your anxiety instead of reducing it, the simple way out is to outsource it to a trusted, professional financial advisor, who can do the job for you.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
