5 Tips for How to Invest Money Wisely in Volatile Markets

By Executive Vice President, Lynn Murrow

1. Establish an effective long-term goal for your investments.

An alarming number of investors cannot clearly articulate their investment goals. You need a clearly defined investment strategy to succeed in any market. This is especially true for volatile markets, which require rapid analysis and decision making based on your investment strategy. A news anchor reporting at the onset of the last market crash said, “what are you going to do with your stock market investments? I have no idea what to do, so I guess I’m just going to sit here and ride it out.” This passive approach is common among investors who do not have a clearly defined desired outcome.

The first step to establishing effective investment goals is to visualize the life you want to live. A monetary goal alone rarely results in success. “I want to create a net worth of over a million dollars” is much less effective than, “I want the freedom to wake up each morning and decide what I want to do with my day. I want to spend time with my family, share new experiences with close friends, contribute to my community, and be healthy and happy as I learn new things and explore new places.” The later goal allows you to visualize the desired outcome of your investments. It helps you choose between a wide variety of investment options and breathes life into your goals, making it easier to stay the course through difficult times.

The second step to establishing effective investment goals is to determine what kind of investments we need and calculate the returns those investments need to generate to meet our goal.

In the example above, the overall goal is to get up every morning and have the freedom to choose the day’s activities. To meet that goal, you need to invest in something that creates passive income (i.e., income you spend very little time generating). To determine how much passive income you need, add up your household expenses on an annual basis, including the cost of the experiences you want to share with friends and family and the charitable contributions you want to make each year. This will give you a number with which to work; however, the dollar amount is not the goal! The clearly articulated lifestyle you desire will provide the powerful WHY to help you stay focused and make effective decisions.

The third step to establishing effective investment goals is to write down your lifestyle vision and the resulting monetary goals in great detail. Keep these goals where you can see them and review them each day, or several times a day if necessary, to stay focused as you make investment decisions. Some people use a bulletin board covered with pictures of their desired lifestyle.

2. Determine the investment vehicles that best suit your long-term investment goals.

It is important to match your investments to your goals. If you don’t, you are destined for disappointment. Spend the time necessary to explore your investment options. Understand how they work, how they create value for you, and evaluate the risks and rewards involved in each option.

Continuing with our lifestyle example, let’s consider an investment vehicle that is touted as the most secure strategy to prepare for retirement, the 401(k). The 401(k) was never designed to be a primary retirement tool. Back in 1978 when the 401(k) was first introduced, people lived differently. Investment decisions were governed by metrics rather than emotion, people stayed in the same home their entire lives, retired with no debt, lived on social security benefits and a small pension from an employer, and had limited taxable income in retirement. Most Americans no longer live this way.

Additionally, the 401(k) has limited investment options, limited withdrawal options without penalties, and gains are required to be reinvested. The 401(k) is also subject to arbitrary changes that have a large impact on people’s retirement plans. For example, increasing the retirement age means people will either pay a penalty on early withdrawals or they will have to leave their hard-earned money in the investment longer than planned. Most importantly, investing in a 401(k) does not generate cash flow to pay for the lifestyle you envision. Many other investments have similar flaws, having outlived the circumstances they were designed to address. The good news is that there is one time-tested investment, rental real estate, that will generate ongoing cash flow to build the life you desire.

3. Understand the risks and rewards of each investment option and compare them to your personal risk tolerance.

Be honest with yourself about the level of risk you are willing to take. This is very personal and there is no wrong answer. Risking more than you are personally willing to lose destroys your lifestyle by creating unnecessary stress, anxiety, and financial strain. Be realistic and find investment options that are well matched to your risk tolerance and your life situation. Single people in their twenties can risk more of their income and savings than people caring for a family or those closing in on retirement. The downside risk of your investment strategy needs to match your season of life.

4. Educate yourself.

Spend the time and money necessary to become educated and well informed on all aspects of your chosen investment strategy. You cannot make effective decisions without mastering the details. Volatile markets test your knowledge by compressing your decision timeframe. You may not have time to fully research your options while in the middle of a fast-paced market. You need to prepare before you leap.

5. Find a mentor who has successfully created a similar lifestyle using the investment strategy you have selected.

It is much more effective to follow in the path of another’s success than to learn from your own failures or the failures of others. Yes, it is critical to learn from our mistakes and the mistakes of others. However, it is more important to participate in a community of like-minded people with similar goals and strategies. This provides a fertile environment for learning, increases your ability to make timely and effective decisions, and brings you closer to the lifestyle you desire. Mentors will help you create a detailed roadmap and will guide you along your route to wealth and passive income. Find a mentor who is part of a like-minded community of investors. This community should provide the connections you need along with a positive environment that inspires you to keep going. Implementing an effective investment strategy under the guidance of a mentor will give you the confidence to make investment decisions even in volatile markets.

As an investor, you have no choice but to start from where you are with the resources currently at hand. Stay positive and hopeful. You CAN create an effective map that gets you from where you are today to the lifestyle you envision.

If you need more help or want to find a community of like-minded real estate investors, check out Lifestyles Unlimited.

You can also start listening to The Del Walmsley Radio Show and the Lifestyles Unlimited Real Estate Investor Radio Show.