Don’t Panic! Keep Calm and Think Long-Term

People tend to react to uncertainty with irrationality. Over the past few weeks, this has been exemplified by panic buying. We also saw investors backing out of possibly risky assets. Driven by fear of a drop in market conditions, investors often sell stock at a loss. But if fear is a bad advisor, what should we do instead?

In the current market setting, with a loss of 30 percent of the German Stock index (DAX 30) in just a few days, many investors question the wisdom of further stock investments. The rates are dropping as uncertain investors reject their shares. However, the probability of greater loss is high, as many shares as well as ETFs are currently disreputably assessed. But the past has shown that rates have the ability to recover. Therefore, long-term thinking is currently the best strategy.

The shares you already own don’t disappear; they just end up being bought up by other investors. There are some investors that use the chance to acquire shares they’ve had their eye on. Those who have invested in a low conversion rate of shares use this situation wisely. Due to the low prices, they receive more for their money than they would have a few weeks ago. A crisis like the one we’re experiencing can therefore be a good chance to let your capital grow on its own, or possibly even to invest more money into it.

An ETF savings plan allows you to make yourself independent from the investment. The plan automatically invests a pre-arranged monthly amount into the account. In an event of a market change, you benefit from the previously acquired shares. The continuous investments, regardless of the state of the market, leads to an eventual mean market rate. The financial investment aims at being a long-term investment of at least three years. This allows you to stay calm in times like these, when your account may be classified as low. In the long-term, the market will recuperate itself and so will your investment.

If you find yourself panic-stricken, review your readiness to assume the risk. You might discover yourself to be less stress resistant than you initially anticipated. This is not a negative thing! It is important to recognize the situation and adapt accordingly. Only invest money that you don’t need in the immediate- to medium-term.

Here are the three positive aspects of the financial crisis to keep in mind:

  • Contracyclical bargaining: The current purchase of low-cost shares.
  • Long-term thinking: There are no indications that the current crisis will be permanent.
  • Safe investments: ETFs are less risky than single shares.

Driven by fears of a recession, the US central bank has grasped at radical solutions. They lowered the key interest rate by a full one percent, bringing it almost to zero, and announced a packet of measures in alignment with other banks. The European Commission has advocated for an emergency program worth millions to support establishments and citizens in the current crisis. This targets European debt, deficit and aid rules to be construed to their furthest extent in order for European states to decide on emergency relief. In addition, millions are to be directed to corporations to keep them solvent so they can continue to invest.

Think Long-Term: Successful Investing is All About Time, Not Timing

When it comes to investing, women are more patient and conservative, and think long-term. The old stock exchange wisdom is true: “Back and forth makes empty pockets”. Every purchase and sale incurs transaction costs. That’s why you should take your time and invest long-term. 

The Deutsche Aktieninstitut has determined that on average, the Dax has generated an annual return of 7.7 percent over the past 50 years. 

Don’t let the media drive you crazy, don’t be volatile and sell too quickly, and above all – don’t let yourself be tempted into emotional investment strategies. 

It is completely normal and healthy (!) that the financial market fluctuates strongly from time to time. However, staying power pays off in the form of higher returns.

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Why Mind the Gap?

Ladies, money is power and it’s time to take a place at the table!!

That’s where Mind the Gap comes in. We organise events, produce digital series & podcasts to answer all your financial questions.

Mind the Gap Team will show you how to smart invest, ask for a raise, save for retirement and manage your professional career. We will also shatter 4 myths surrounding women and money, such as:

Myth 1: Money is a men’s issue.

WRONG! Mind the Gap talks about money! Our talented community talks about money as well. We are here to show you that money is sexy and you don’t need to finish financial studies to achieve financial freedom.

Myth 2: Women are not good investors. We would not say that.

Women are largely responsible for the managing of their family’s day-to-day finances and are more likely to make financial decisions that will affect the future of their families. The ability of women to stay the course and not react to or try to beat markets is one of the reasons the portfolios of women generate higher returns than those of men. Moreover, women shift to a long-term focus, save more up front and assume less risk, such as not loading up entirely on equities.

We – Women – want to understand what we are doing so that we can feel confident about our decisions around our investments. Men on the other hand focus more on how much money they can make based on their investments.

Myth 3: You need to devote hours to investment analysis and learning.

Take yourself out of your comfort zone and learn about investments; trust yourself, you will make good decisions. The more educated you are about money and investments, the better the money decisions you will make. Own your role as the household’s money manager and work with a financial adviser to plan for your family’s future.

Myth 4: If you’re saving there’s no need to invest.

Not true.

There is a big difference between saving and investing. And there’s nothing wrong with saving  – but it is not enough. Simply put, it’s highly unlikely you’ll achieve financial freedom or meet your life goals with just a savings account. Why? Because women in most developed countries receive lower retirement pensions than men. In the EU, women on average receive 39% less than men.

But if we can encourage more women to consider investing as a long-term alternative to cash savings, this could have a significant impact on reducing the investment gap, while providing a boost to the wealth generation of women, their families and the country at large.

Are you with us?