You’re probably panicking about the stock market’s recent volatility, but the best thing to do is keep your cool and take some time to evaluate your investments and your personal risk tolerance. First, you should stop checking your account balance. Second, you should avoid selling stocks, even if you’re holding them for years. Successful investing means buying low and selling high. Selling stocks during a crash is a classic case of selling high.
Another thing to remember is that emotions often drive stock market crashes. If you invest for the long term, operating earnings growth will drive equities higher. However, short-term worries rarely affect the long-term growth potential of great companies. Thus, it’s important to reassess your holdings after a market crash. As a rule, investors should never sell stocks when the market is down, as panic-selling can leave you with regret.
Buying during market dips is a great way to purchase stocks when the price falls. Buying during a market dip is similar to buying during a crash. But, you must be prepared for the fall and commit to the cash needed to buy the falling investment. You should keep money for emergencies and an emergency fund, in addition to cash for everyday expenses and retirement. You should also create a wish list of individual stocks that you’d like to buy.
As a rule of thumb, invest in low-risk investments and make sure to set up a stop-loss order on your investments. This will help you limit your losses and still preserve a diversified portfolio. If you can’t afford to make the market crash, you can consider diversifying your investments and moving them to lower-risk vehicles such as bonds, indexed annuities, or gold. These conservative investments will slow your growth and minimize your losses during a major downturn.
Diversify Your Assets – Investing in a variety of asset classes is essential for long-term investment success. Diversification limits the impact of a single asset or sector’s decline on the overall portfolio. Diversification can help you avoid the once-in-a-generation crash. A strategy of diversification can help you avoid market timing and protect you and your assets. This is the best time to assess your diversification strategy and adjust it to suit your risk tolerance.
Don’t Panic – Don’t lose faith in the markets! When markets plunge, the news media goes into frenzy, provoking investor fears. Instead, keep a cool head and take some time to evaluate your options. Don’t watch financial television all day long and make smart decisions based on your risk tolerance. Remember, there’s no reason to spend your money on a stock that’s going to crash. You can always reinvest it later.
Invest in a good company – In a down market, many good companies are on sale, so if you’re already invested in a company you believe in, buy the shares when the price is low. When the stock price is down, it gives you a chance to do dollar cost averaging – buying more shares at a lower price than you paid for them originally. By doing this, you can buy a smaller amount but reap the benefits of a rising share price.