Investing is essential for building wealth and achieving long-term goals like retirement. Essentially, investing means sacrificing current consumption to boost future consumption. While this concept seems simple, the practice can be challenging. Emotions often cloud rational judgment, leading to poor decisions and unfavorable outcomes.

Here are some mental strategies for navigating the investing landscape, which may help you manage your emotions and increase your chances of reaching your investing goals.

7 mental tips each investor should have

1. Stay calm: Volatility is part of investing

Many people invest in stocks due to their attractive long-term return potential, and rightly so. Historically, the S&P 500 Index has delivered an average annual return of around 10 percent, making index funds a cornerstone of retirement portfolios. However, it’s important to understand why these returns are available.

Stocks don’t increase by 10 percent every year. Their returns are quite volatile, with periods of rapid gains and significant declines. This volatility, or risk, is what creates the potential for high long-term returns. When you see stocks dropping or entering a bear market, remember that this is expected and part of the reason you’re compensated well for holding stocks.

While some investors may instinctively want to sell during downturns, staying calm and remaining invested can lead to future rewards.

2. Set realistic goals

A crucial aspect of achieving your investment goals is setting realistic expectations from the start. If you anticipate generating annual returns of 15 or 20 percent, you’re likely to face disappointment, which can lead to poor decision-making, such as taking on excessive risk.

Your return expectations should be based on the investments in your portfolio. For most investors with a stock-heavy portfolio, long-term returns of 6 to 8 percent are reasonable to assume. Early in your career, if your portfolio is entirely composed of stocks, you might be at the higher end of that range or even exceed it. However, as you approach retirement and your portfolio shifts more towards bonds and other fixed-income securities, returns are likely to decrease.

3. Ignore short-term predictions

The investing world is filled with self-proclaimed experts eager to predict the future of stocks, the market, or the economy. While these forecasts can be intriguing, the reality is that no one can accurately foresee what will happen. Often, the individuals making these predictions don’t face any consequences for being wrong, as their compensation isn’t tied to their accuracy.

Ignoring these predictions can be challenging, especially when they come from seemingly impressive sources making compelling arguments. However, resisting the urge to trade based on every new prediction from market commentators will likely lead to better long-term outcomes.

4. Saving is a key part of any investment plan

Investing is appealing to many because of its potential to significantly grow wealth over time. With high rates of return, the power of compound interest can transform a small amount of money into a substantial sum. However, controlling the rate of return on your investments is challenging. One factor you can control is the amount of money you save.

While it’s true that saving less may be sufficient if you earn a 15 percent annualized return for 30 years compared to an 8 percent return, predicting your future returns is impossible. A more prudent approach is to save with the expectation of earning a lower return. If your actual return is higher, you’ll end up with more money, possibly allowing you to retire early or enjoy a more luxurious lifestyle in your golden years.

5. Don’t try to time the market

When the economy starts to slow and fears of a recession arise, it can be tempting to sell some of your investments and wait for better times. However, this approach has several flaws.

First, predicting when a recession or slowdown will occur is highly risky. Often, concerns about a downturn are just that – concerns, and a recession may not actually materialize. People predict more recessions than actually happen, so you might exit the market unnecessarily.

Second, even if stocks decline due to a recession, determining the right moment to reinvest before the recovery is incredibly challenging. This usually means reinvesting when the economic outlook appears darkest, such as when unemployment is peaking and corporate earnings are plummeting. For most investors, this is a daunting task.

A more reliable strategy is to consistently invest over time through dollar-cost averaging. Index funds are an excellent way to maintain this steady investment approach.

6. Admit mistakes and move on

Studies show that investors often hold onto losing investments too long, hoping to break even or recover. This strategy can hurt your portfolio by dragging down overall returns and missing out on more promising opportunities.

Admitting you were wrong and recognizing mistakes quickly is a valuable investing habit. Waiting to sell a losing investment until it returns to its purchase price may be futile if the issues that caused the loss persist.

“A very important principle in investing is you don’t have to make it back the way you lost it,” legendary investor Warren Buffett told shareholders at the 1995 Berkshire Hathaway annual meeting. “And in fact, it’s usually a mistake to try and make it back the way that you lost it.”

7. Don’t think you know more than you do

Investors often fall prey to overconfidence, leading them to take on inappropriate levels of risk. This overconfidence can result in attempting to beat the market by selecting individual stocks or heavily weighting a few stocks in their portfolio. Beating the market is extremely challenging—most professionals fail at this—and concentrating your portfolio in just a few stocks increases risk.

Remember, slow and steady wins the investing race, even if it’s not the most thrilling approach. Avoid trying to swing for the fences with a “sure winner,” as there’s always a chance you’re wrong. By preparing for this possibility, you can ensure that a couple of missteps won’t jeopardize your long-term goals.

In Conclusion

Nearly everyone needs to invest to achieve their financial goals. While investing can pave the way to wealth and independence, there are many potential pitfalls. Establish a plan, whether through a financial advisor or on your own, and commit to sticking to it despite market volatility, short-term predictions, and other distractions. Mastering these strategies can help you cultivate a strong investment mindset and increase the likelihood of meeting your long-term goals.