If the stock market downturn at the end of 2018 has you feeling jumpy, hang in there. There has been a lot of speculation about how the markets will fare in the new year, and even some concern about a looming recession.
Regardless of how the year pans out, remember that playing the long game often yields better results for investors. Here are some tips for what to do when the market drops:
Understand market volatility
As frustrating as they can be, downturns are normal. History has shown that the U.S. Stock Market is resilient, so the key is to ride out the tough times.
Check your portfolio
Keep an eye on your portfolio, but limit changes to no more than once per year. Taking action too frequently can result in knee-jerk reactions that don’t pay off in the long run.
Assessing your portfolio annually gives you the chance to make sure it’s still performing well and aligns with your goals without obsessing.
That being said, there is a benefit to checking your portfolio in the midst of a downturn: If you need to rebalance your portfolio, you can likely get low prices on new investments you plan to buy.
Know your ideal risk level
If you panic every time the market dips, it might be because you’ve taken on too much risk. The best level of risk for you to take on will depend on your age, your goals, and how comfortable you are taking on risk in terms of your investments.
It can be tricky to land on the right balance between too risky and too conservative. That’s why it’s beneficial to review your portfolio occasionally to make sure it matches your original mix of investments.
Have an investment game plan
Try to take a longer-term approach for when and how you plan to invest. Let’s say you commit to making quarterly investments.
If you continue to buy even when the market is down, you will likely be able to buy more shares because prices fall. Historically, some of the best returns on investment happened directly after the worst periods in U.S. economic history.
Sticking to a buying plan that you’re comfortable with will help take the fear and hasty decision making out of investing.
Avoid timing the market
According to Morningstar, investors do better when they buy and hold their funds as opposed to trying to decide when to buy and sell funds for the best returns. Long-term investing has been shown to be the more lucrative option over and over again, so invest for returns over time.
The market can move in impossible ways, so timing it is often a losing game.
When it comes to navigating a downturn, it’s smart to focus on having an overall strong plan that can weather volatility. A long-term investment plan built on your goals and comfortable level of risk can help you earn money despite the ebb and flow of the markets.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.