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A volatile stock market can lead to big fluctuations in your brokerage account. Stop stressing about these ups and downs with one simple tip.
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Since last year, we’ve been going through a volatile stock market. In fact, 2022 was the market’s worst year since 2008, with all the major indexes having down years. The S&P 500, an index that tracks 500 of the largest companies on U.S. stock exchanges, fell by 19%. So far, 2023 has seen its fair share of ups and downs, as well.
If you’ve been keeping track of your brokerage or retirement accounts, there have probably been times when you’ve logged in and seen that your investments took a hit. Rationally, you can tell yourself that this is normal, you don’t lose money unless you sell your stocks, etcetera, etcetera. But let’s be honest, it’s always unpleasant to see your account drop in value.
I’ve gone through the same worries. And since I like to invest often, that stress quickly got old. Fortunately, I came up with a simple trick that helps me feel much better about where my portfolio stands.
Focus on the gains, not the losses
To stop worrying about my brokerage account, I started focusing on the number of shares I own of an investment, not the current market value. Even if the market value drops, the shares I own keep growing, and I know they’ll be worth much more later.
For example, let’s say you own 500 shares in a mutual fund, and you invest $300 every month. When you logged in last month, the market value was $100 per share, and your account was worth $50,000.
This month, the price dropped 5% to $95 per share. Your account’s value is now $47,500. You certainly don’t want your portfolio moving in that direction, but you still own the same number of shares as before. And when you invest $300 this month, you’ll be buying at a lower price, so it’s like you’re getting a discount.
There are two reasons this works for me:
I’m confident in my investments. I mostly invest in a total stock market fund, and the stock market has a proven track record of success over long periods of time.I stick to long-term investing. The value of my shares could go up or down in the next few months, but over five to 10 years or longer, I expect them to appreciate quite a bit.
How to build a worry-free investment portfolio
The key to making this strategy work is to build a portfolio that you believe will have long-term success. So, how can you do that?
The easiest option for most people is to stick to investment funds, since these allow you to build a diversified portfolio in a single investment. A few of the most popular types of investment funds are:
Mutual fundsExchange-traded funds (ETFs)Target-date retirement funds
Mutual funds and ETFs are both pretty similar, as they invest your money in a large number of stocks. The main difference is how they’re traded. With mutual funds, the price is set once per day. ETFs are like stocks in that the price changes throughout the day.
Target-date funds are designed to set you up for a specific retirement year. The asset allocation in the fund changes as it gets closer to your retirement year to decrease volatility.
You could also pick stocks yourself and build a portfolio that way. It’s more time-intensive, as you should ideally find at least 25 quality companies to invest in. But this is a good option for investors who like to be more hands-on.
As I mentioned earlier, the bulk of my money is in a total stock market fund. It’s easy, it’s not time consuming at all, and I’m comfortable trusting that the stock market will do well long term. And that’s why instead of worrying about my portfolio’s day-to-day value, I just look at my shares to feel good about my investments.
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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.
