In the past few weeks, I have been covering my eyes and only allowing my fingers to protrude when I look at my investments as if I were facing Freddy Kruger rather than a list of numbers. It doesn’t help that the financial news is rife with ominous prospective futures, such as a looming recession, trade conflicts, and market corrections.
It makes me want to withdraw every penny from my assets and stash it under my mattress or some other secure place.
The worst thing I could do while my portfolio is heading downward is to withdraw my Money from the market, no matter how overpowering a market fluctuation may be. This is because selling is the only method to ensure that transient losses turn into permanent ones.
It’s far easier to know that you should stick with something than to do it. Understanding how to maintain your composure if you’re tempted to cut your losses when you hear doomsday financial predictions are crucial. Penny stocks, here are some strategies for remaining composed in a frightening market.
Remember that hiding is OK
Although it often receives criticism, keeping your head in the sand can be the wisest move. That’s because we react to fear by acting, which is a cognitive bias. We believe that moving forward is better than staying still, even if it is detrimental. However, individuals tend to sell when the market is at its lowest and buy at its highest because they listen to the action bias. They are terrified of remaining idle.
When the market is plummeting, it’s impossible to ignore the voice in our thoughts yelling at us to “Do something!” Ignoring your portfolio is the more straightforward way to get past the action bias.
Naturally, this does not imply that you should never review your holdings. However, if you follow your rational investing plan, your daily portfolio checks and obsessive financial news consumption will cause you to make decisions out of fear (or greed).
Instead, plan to regularly monitor the performance of your investments, such as once a month or once a quarter. This will give you the knowledge to maintain a balanced asset allocation and make the required adjustments without succumbing to action bias.
Although every stock market analyst and financial planner has the proverb “past performance is no guarantee of future results” almost tattooed on their foreheads, there are still valid reasons to consider the market’s historical performance. You may observe that markets invariably trend upwards if you look at long-term trends and overall historical returns.
It is no anymore enjoyable to experience short-term losses and volatility knowing that the market will recover. Still, it is simpler to put whatever transitory losses you suffer in perspective. The portfolios of wise investors who remained calm during the market corrections of 2000 and 2008 eventually recovered. Even though a drop might be distressing, sticking to your path and having faith in the market’s long-term historical trends can assure you that you and your Money will make it out alive.
We often disregard the fact that volatility is a standard component of financial markets, which is one reason we tend to overreact to it. Market turbulence is common, and throughout a long investing career, we should anticipate experiencing several of them. However, we frequently assume that markets will continue to rise. Even a slight decline may seem overpowering with that level of anticipation.
Making a strategy for what you’ll do in a downturn is an excellent method to combat such expectations (and the subsequent dread when they’re not met).
Your volatility strategy may be as straightforward as deciding to stick your head in the sand during downturns. It can be easier to follow through with your plan if you are aware in advance that you’ll cut back on portfolio (buy stocks) check-ins when things are looking bleak.
Instead of merely being reactive, your plan can also be proactive. Since you know market turbulence is common and inevitable, plan for how you’ll include these variations in your investing approach. Instead of viewing a downturn as something to be afraid of, you can elect to buy more investments during one.
Humans are not naturally built to make sensible investment decisions, which explains why we typically do so poorly. When we’re terrified, our emotions can override our logical approaches. However, selling your investments due to market turbulence and alarming headlines is adopting a long-term fix for a short-term issue.
Before any frightening market changes occur, consider your strategy for handling them. When you have a backup plan, you are less likely to respond out of fear since you are aware of it.