Don’t panic, prepare for the long term
We all know the fundamental tenet of investing all too well: buy low, sell high. We also all know that this is much easier said than done. When the stock market is volatile, as it is right now, most people approach times like this with a reactionary perspective: selling low and panicking to get out of the market. However, this reaction, while common and expected, is one of the most detrimental things an investor can do. Above all, it is most important to prepare for the long term when investing and avoid reacting hastily to the ups and downs of the market.
Cut out the noise.
When markets begin to go down, the best thing you can do is remain calm. You’ve prepared for the long term and you know that committing to something over a long period of time comes with ups and downs. For your own sanity, try to turn off the TV. Watching CNBC will only make you more unsure about your plan to “stick it out” during hard times. Trust your plan and don’t let the media panic get to you. If you know you’ll be able to separate the stress of others from your own, go ahead and watch for the entertainment and for some perspective. But do not be convinced to pull your money out of the market until things “calm down.” It’s impossible to time the right moment to get back in.
Remember the benefit of dollar-cost averaging.
Essentially, dollar-cost averaging is the process of purchasing a fixed dollar amount of a particular asset or investment regularly, regardless of the share price. By doing this, you even out the ups and downs of the market by avoiding buying at the highest or lowest price of the investment. This helps you maintain a sound long-term strategy that can shield you from volatility. It is important for investors to accept that nobody has a crystal ball–it is always better to invest for the long run, over a longer period of time, than to try to guess the best moment to invest and sell.
Think ahead about volatility, plan according to your age.
Keep in mind that at a younger age, you will have plenty of time to recover from losses. As you get older, it’s a smart idea to transfer more money out of stocks if you can’t stomach higher losses. Some individuals as well as a number of automated advisor services will base the percentage you should invest in stocks on age alone (or “time horizon”). However, this doesn’t take into account your individual risk tolerance. A lot of young people are extremely conservative when it comes to investing and many older individuals want to take on a great deal of risk. People don’t fall into categories so neatly—everyone approaches investing in their own unique way. For this reason, it is certainly better to consult your financial advisor when allocating your portfolio.
Lastly, and most importantly, talk to your financial advisor.
It is this individual’s purpose and main objective to help his or her clients navigate personal finances, investments, and much more. Use them as a resource! They want to help you. After all, they dedicate their time to understanding the markets and determining the best, most appropriate strategies for each client. Choose an advisor who always makes time for you and you will know you have someone looking out for you when the markets get rough.
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