The stock market, and all markets, go through their periods of volatility. When the market is going up in a volatile manner most investors do not lose sleep. When they start dropping with 200, 500, and 700 or more-point swings, many investors get rattled. When you encounter markets like this, there are three key pieces of advice that every investor should follow:
- Take a Deep Breath and Don’t Panic Sell
When the market tanks several hundred points per day, for several days in a row, DO NOT SELL. Take a long deep breath and ponder what happened to those investors that did panic sell in 1987, 2008 and all the other occasions. They locked in their losses and over time they grew to regret their mistake. Another great tip to calm yourself down is look at any of the popular stock market charts illustrating the ups and downs over the past 100 years. You can plainly see that over long periods of time the market continually increases. Trying to time the market nearly always results in losses, rather being in the market for long periods of time nearly always results in gains.
2. Speak with Your Financial Advisor
If you are losing sleep over volatility, then speak with your financial advisor and call them as often as you need to get comfortable with what is going on. One of the many reasons you have an advisor in the first place is to help through rough times, be they market generated or something specific in your life. Having an objective, educated and licensed third party to give perspective is invaluable in difficult times.
If you do not have an advisor, consider hiring one on an hourly or project basis. Many millions of investors are semi self-directed and tap into guidance when and how they need it. The number of advisors now available on an hourly or fee basis continues to grow rapidly to serve the very large marketplace of those that want to be involved in their finances, but also want an expert to confer with.
3. Review Your Financial Plan and/or IPS…and Consider Buying More
If you have a written financial plan and an Investment Policy Statement (IPS), times of tumult are ideal times to review these important documents. Each should be reviewed annually, so they should be fresh in your mind anyway. If after reading through them again, and if nothing has fundamentally changed in your plans (i.e., your retirement age has not changed, health is still fine, etc.), then consider investing more into your portfolio, as after all, market drops really mean your favorite investments are “on sale”, and most people would rather buy things when they are on sale, as the old adage goes. Of course, it is ideal to have your financial advisor opine on this for that second set of eyes.
Warren Buffet has famously said “When everyone else is selling, buy and when everyone else is buying, sell”. In reality the Oracle of Omaha is preaching calm, so by following these three steps, you can help avoid the common mistakes so many others make in volatile times.
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