Disciplined investing involves sticking to an investment strategy despite short-term market fluctuations. This practice becomes paramount during market crashes. As investment legend Benjamin Graham once said, "By developing your investment discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny.”
Steeling your emotions against wild market swings and corrections is crucial during market downturns. During the period of Feb. 19 to March 23, 2020, when the markets lost approximately one-third of their value, it is understandable that many investors felt panicked.
However, by working off a financial plan, setting an investment and risk policy and relying on the guidance of a financial adviser, you should be able to sleep better at night when markets swoon.
Having investment discipline helps investors remember the reasons they began investing in the first place. As investment guru Peter Lynch of Fidelity fame once advised, “Know what you own and why you own it.” Articulating your holdings and the underlying reasons for owning them is essential. This clarity can keep you focused on your longer-term goals and help prevent impulsive decision-making during volatile periods.
To avoid selling stocks at inopportune times, it is advised to have assets readily available for shorter-term liquidity needs. Investments such as money markets, certificates of deposits (CDs) and short-term investment-grade bonds can be useful when unexpected bills arise. This cushion of assets can help you avoid making rushed decisions and stick to your long-term investment plan.
Discipline in investing plays a crucial role in navigating volatile markets. You can stay focused on your longer-term goals by controlling your emotions, remembering your investment objectives, seeking guidance from veteran financial advisers and keeping liquid assets available.
As Warren Buffett famously stated, “The stock market is a device for transferring money from the impatient to the patient.” Embracing discipline can help you become a more patient investor.