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2 Steps Forward, 2 Steps Back: Market Psychology

About a year ago I wrote a post about not setting goals based on Net Worth.  Regretfully here we are a year later and much of the risks of using net worth as a goal post are coming true.  Today we’re going to explore what that means for me personally and what to do about it.  What to do when your financial life takes 2 steps forward and 2 steps back, market psychology.

I’ve written more recently about the jittery flow of the market and the bad idea of attempting to market time.  One could wonder if I’d written those posts for any given day, but the reality is I wrote them out of mild annoyance.  No, our finances have not declined significantly.  No, I also haven’t changed course.

2 Steps Forward, 2 Steps Back: So Goes Our Net Worth

But that doesn’t mean all is well with our net worth.  Over the last year we’ve continued to dump money into our retirement at a rate exceeding our expenses.  In fact contributions have totaled somewhere between 5-10 percent of our net worth per year.    In any world this equals significant success.  And yet when viewed from the aspect of net worth it’s not enough.  It just so happens that from January 24th to the time of this writing the market has declined by 5 percent.    So despite doing everything right, we’ve taken 2 steps forward in savings only to find ourselves right back where we started at the beginning of the year (2 steps back).

Net Worth makes a Poor Goal

If net worth was my primary goal I’d probably be truly frustrated rather than annoyed.  Worse still, I imagine if I didn’t remember prior pullbacks (or had insignificant nest eggs at that time) I’d feel much worse.    So what happens next?  

Market Psychology Does Not Impact My Investing

Well I already established from an investing perspective we stay the course.  Adding to that my investment plan clearly states I continue to the stay the course no matter what happens next.    I established these well before my mind could be clouded by the frustrated emotion, or worse in the case of a real crash the fear emotion.  I’m continuing to follow those plans, so no worries there.

Market Psychology does Impact Me

But what can be done about the psychosis of feeling like you are spinning your wheels, or worse having them fall out from under you?  That is really the point of this post.   Mind you the below might be a stretch for extreme cases where you lose both your job and your net worth, but this post is less about job loss and more about the fear of a market crash that has consumed the popular zeitgeist.  In that scenario the actions are easy once you put them on auto pilot, but how do you sleep at night?  How do you keep the stress of a market crash from consuming the rest of your life? 

How to Deal with Market Psychology

The answer to this question is very personal for each of us.  I can only share my own, but I encourage each person to think about such things ahead of such an inevitable event.  After all it is an inevitability that you will experience a major market melt down sometime in your life.  So how do you deal with that psychologically.   For yours truly the answer is twofold.  


The first requirement is gratitude.  I remind myself every day of how well off we truly are.  Even if my assets were to halve tomorrow I’d be doing well compared to what most people say you need at this age.   I have a great family, a nice house, and a good life.  All things I am  thankful for and truly blessed to have.  It’s easy as you see wealth building to the sky to lose track of the gratitude for the gains you’ve already made, and the non monetary things surrounding you.  But true happiness is about gratitude and family/friends, not money.  Remembering that when entering a recession leads to a lot less stress over the movements of the market, because it reaffirms what truly matters.

Can Do Attitude

The second answer is to remind myself that I can conquer whatever adversity comes my way.   I know that even if it all went to hell in a hand basket tomorrow I’d find a way to make it work.  I’ve built a foundation, and even if bits fall off the building, that foundation will remain to continue to build.      Sure there are situations I will not have foreseen.  Many of these are mitigated by insurance, but still others may blind side me. But if there is one thing I’ve learned over time, the power of positive thinking is real.  I think therefore I am.  And if I truly believe I will be successful, odds are high with the gifts I’ve already been given (see item one) I will be successful.

How Do You Deal with Market Psychology

This positive can-do attitude combined with gratitude for what I already have is what keeps my fear and frustration with the market at bay.  Frankly it’s also what keeps me happy on a day-to-day basis, drives me forward, and in general just drives me.    Each person is different though.  Have you found that item that will allow you to sleep well at night during the next pullback, crash, or worse depression/recession?  It might be time to give it some thought if you have yet too.


  1. Mr. 39 Months
    Mr. 39 Months May 21, 2018

    This is always a concern of mine. I try to not check my stocks more than once a month (to create my update). Its hard not to get concerned at times, but I try and stick with the plan, at least for a full year before making any major change.

    • FullTimeFinance
      FullTimeFinance May 21, 2018

      I tend to review every month or 2, but sometimes it is hard not to peek.

  2. Greenbacks Magnet
    Greenbacks Magnet May 21, 2018

    I just try to keep my head down and keep working. Even if there is money in the bank, keep working.

    • FullTimeFinance
      FullTimeFinance May 21, 2018

      Pretty good option, focus elsewhere.. Thanks for the add.

  3. Rebel Saver
    Rebel Saver May 22, 2018

    I can definitely relate. While I know it’s better to not have an emotional reaction, various reactions creep in.

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