By Bolun Li, CEO and Founder of Zogo
2022 has been a year of holding on. As investors, we’re trying to hold on through inflation, through rising interest rates, and even through fears of recession. We’re all waiting for the answer to one question: What’s going to happen next?
When we’re unsure of the future and afraid of losing our money, we tend to lose confidence in our investing choices and instead wait for a “better” time to invest. But the truth is, there is no better time, because no one knows what the future of the economy will actually look like.
When I graduated college in 2020, I was expecting to enter one of the strongest job markets in recent history. Instead, the economy seemed to flip upside down overnight, and during Zogo’s first year, we saw the market drop to extreme lows and climb to extreme highs. We experienced firsthand just how unpredictable the economy can be. But through it all, we noticed one hopeful trend: People want to invest.
Investing is what helps us build wealth so we can reach our financial goals and have security during uncertain times. And especially over the past few years, the finance world has broken down barriers to make investing more accessible to everyone. This includes access to financial education to help people of all ages and experiences start building wealth for themselves and their families, and there is an overwhelming interest from new investors excited to start climbing the ladder.
But when downturns, inflation, and signs of recession are at the front of everyone’s minds, it’s easy for fear to take the driver’s seat and place our education and confidence in the back. Financial confidence is a mindset that matters, as it can play a huge role in our actual financial success. It’s not easy to remain confident when the economy seems rocky, but that’s often when it’s most important.
When there’s widespread fear around the economy, one of the biggest mistakes an investor can make is to buy into the panic. Financial education and advice are more accessible than ever, but that also means we have to sift through opinions and predictions coming from all directions. Friends, family members, coworkers, and the news can fuel our fear and cause us to make decisions we may regret in the long run.
When we’re facing a looming recession and uncertainty, we have two main choices: panic or prepare.
Panicking keeps investors from sticking to their investment strategies, and it can keep some from investing at all. This “playing to not lose” mindset can actually be harmful in the long run since it focuses on trying to time the market in the short term. And if there’s one thing we’ve learned from the past few years, it’s that timing the market rarely works out. Ironically, beating the market is often a losing game.
Preparing for economic uncertainty is one of the best ways an investor can build their financial confidence and create a strong foundation that outlasts fear. It’s not about waiting for perfect conditions. It’s about creating a financial plan that can weather the storm.
The first step is to truly understand your financial situation. If you know exactly where your money goes every month, you can plan ahead for ways to alter your budget if your situation changes. Having a written financial plan will help you stay on track and make sure your money is going toward what matters most.
Beyond what we can control, one of the biggest drivers of fear during economic downturns is what we can’t control, like job loss. The best way to prepare is to build a solid emergency fund. It’s much easier to make decisions with confidence if there’s a safety net beneath you.
If you don’t already have an emergency fund, make a plan to start putting away as much as you can every month — even the smallest contributions add up, and any savings helps when you need it.
Once you’ve made your spending and savings plan, there’s one more important plan to make — your investment strategy. This is where financial education is especially important. Understand the risks associated with every investment, and think about your own risk tolerance and goals. Make your plan, and stay true to your strategy.
It’s tempting to stop investing or to sell for losses when the economy turns, but investors who drop out when the market is down often miss riding the wave when it comes back up. Keep your focus on your long-term goals, contribute regularly to average your costs, and don’t let fear and panic around you discourage you from staying the course.
Investing with financial confidence isn’t about knowing the “right” investments to pick at the “right” time. No one knows what the future holds, so your best bets are always to do your research, find reliable financial education, and make a plan you can stick to. No matter where you are today, you can head into the new year with confidence and take control of your financial future.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.