It seems counterintuitive to invest with markets sinking and talk about a recession surrounding us.
Yet, those who seek to build long-term wealth are well advised to do just that.
Your mind is telling you to run away and save yourself.
The mind is hard to quiet. In fact, an entire industry is helping people with mindfulness. The meditation app, Headspace, has more than 30 million users. Rival, Calm reached a $2 billion valuation in 2020.
You can find many books focused on the mind. While searching for ways to quiet my mind, I found Dan Harris’s Meditation for Fidgety Skeptics: A 10% Happier How-To Book. This book and others have helped me find ways to reduce overthinking when things do not go to plan.
In addition to working to quiet the mind, an investor can utilize a simple tactic to help carry you forward, even in tough times.
Automate Your Investment Contributions — Set it and forget it
If you have a 401k, you automatically invest a set percentage of your salary each pay period. You don’t have to consider this investment; it happens each time you get paid.
No matter the state of the market, you are investing each time you receive a paycheck.
You may worry about the market conditions, but unless you actively go into your 401k and change your contributions, you will continue to invest.
One nice thing about a 401k contribution is that the money never hits your checking account. You can become accustomed to living off of only what you see in your paycheck. With discipline, you can find yourself in a position where you never miss the money automatically invested into your 401k.
Not everyone will be able to do this pain-free from day one, but all of us can build up to a point where the retirement investment is out of sight and out of mind.
If you have a 401k and your employer provides a matching contribution, you should contribute enough to get the full match from your employer. Their match is free money — a guaranteed return on investment.
If you cannot afford to contribute enough to get the entire match, contribute what you can and work to increase your contribution when you receive a raise.
Starting is better than sitting on the sidelines.
Once you’ve automated your 401k contribution, you become a dollar-cost averaging investor. Regular contributions at defined time intervals rather than market conditions help you ride the waves of investing. You are not trying to time the market. Instead, you buy no matter the market condition. When prices are low, you buy more shares and fewer shares when prices rise.
Automation can slow knee-jerk reactions.
When your contributions are automated, you have to take action to make changes or stop contributing.
If you manually allocate money for investment, say into an IRA or an after-tax brokerage account, you have to take action to put your money to work. You might look at CNBC and see that the sky is falling. This dire news may deter you from taking action and moving your money to your investment account.
I have news for you. CNBC is full of the sky is falling articles. People seem to love to read about doom and gloom.
I’ll admit that I visit CNBC far too often.
However, my contributions to all of my investment vehicles are automated. I do not have to take any action to move money from my checking account into my investment vehicles.
When I read about how this recession will be worse than any other ever, my automation works in the background to ensure that contributions occur despite my worries.
I must log in to my accounts and disable the automation to stop contributions. This small barrier and my efforts to quiet the mind have been enough to maintain my contributions through good times and bad.
Author James Clear writes about being in motion vs. taking action. Thinking about something, like the bad news you read on CNBC, puts your mind in motion. However, only action will produce a result. Motion just keeps you spinning.
When your investment contributions are not automated, you have to take action to move the money. Any bad news in the financial world can quickly derail you and become an excuse not to take action.
Suddenly you are not investing, and the market is passing you by.
On the other hand, when your contributions are automated, you have to take action to stop or reduce them. The simple act of logging into your account to change the contribution is often a large enough barrier.
We love excuses to take no action.
Automation takes advantage of this human quality. I mean, look at all of the subscription services you are paying for. I’m willing to bet there are some you don’t use.
Riding a bear is easier with automation.
I’m a relative dinosaur in the Financial Independence community. At 49, I’ve been investing for nearly 30 years.
I unknowingly used automation to my advantage when the dot com bubble burst and through the financial crisis of 2008. When the world came to a halt in 2020, my contributions automatically poured into the market with each paycheck.
Nothing has changed with my strategy in 2022. Our family contributions continue through automation.
I read too many doom and gloom articles. I worry about the future of our country and the financial impacts of a recession that is probably coming.
But I have automation running in the background that methodically invests for the long run. The automation doesn’t care about the news of the day, the market performance, or how worried I might be about any of it.
I also work to quiet my mind and do my best to read fewer articles that make me uncomfortable about the market. Ultimately, I read lots of those articles, though.
Automation is my first line of defense, and it works wonders. It causes me to stop and consciously decide to take action before changing my contributions.
Investing in uncertain times is scary.
It’s easy to find an excuse to take no action.
When you automate your investment contributions, you set up a barrier, promoting a positive outcome when you fail to take action.
Without automation in place, you must take action to invest. The day’s news can quickly derail your action and put your investment dollars on the sideline instead of in the market working for you.
There are no guarantees, but historically markets have risen over the long haul. If you are like me, you are investing dollars now for income for the rest of your life. You are in this for the long haul.
Use automation to your advantage to help keep your investment dollars flowing and working for your future.
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