When The Market Dips, Don’t Panic

Man PanicWhen you think of the word investing, what is the first feeling that comes to mind? Excitement? Disinterest? Fear?  I can say that I’ve felt all this and more when it comes to being an investor.  In today’s financial climate, the stock markets change a lot faster than the four seasons and it’s hard to keep up with day to day business events.

We hear of Argentina defaulting on their national debt but their stock market is at an all-time high.  Asian consumers will have managed to directly take a chunk out of McDonald’s profit margin in the third quarter of 2014 due to the tainted meat scandal.  Scotland is threatening to declare independence from the UK.  Scottish banks and insurance companies are very skittish about the prospects and depending on the outcome of the referendum, the larger institutions may relocate their headquarters to the UK.

In short, world markets are being buffeted around by events occurring on scales of all proportions and American investors are undoubtedly feeling the impact of what happens within and beyond our borders.

Stay The Course

The majority of us are not financial experts and we often choose relatively easy to understand options such as mutual funds, ETF’s or index funds to invest our money in. Since it’s usually for the long term, we tend to set it and forget it until we hear that the markets are consistently dropping.

When this happens, should you panic and bail out your investments before the market crashes in the way of 2008-2009 proportions?  Many financial pundits will tell you no and to do the opposite which is to stand your ground.

Too many make the mistake of trying to “time” the market and this requires knowing when to sell and when to jump back in.  If you don’t follow markets on a daily basis, or read valuation reports on every single company that your mutual or index funds holds, then you will have a very inaccurate idea of the state of the economy overall and end up faring poorly with the market timing strategy.

Misinformation along with hurried decisions based on fear, will often cause you to lose money over the long run if you cash out your holdings, rather than staying put in the market and waiting for it to rebound – as it always does.  It’s normal to feel concerned about your financial wealth when the markets do drop, yet it’s crucial that you don’t allow your emotions to challenge your investment goals.

Seize The Opportunities

Markets realistically cannot chart upwards without any end in sight.  Think of market downturns as an opportunity for you to buy more of the investments you currently hold while they’re “on sale”.  If you believe that stocks and bonds are a solid way to achieving long term returns, then buying when the market is low makes sense.

This is also an opportunity for you to revise your current investments and see if they need rebalancing.  Evaluate the long term performance of the positions you own and consider whether your current holdings still fit your investment objectives or if those objectives have shifted. Perhaps you need more cash in the next five years because you’re planning to buy a rental property or you may be seven years away from retirement. Any major life changes will impact your financial objectives so take them into account when making any changes to your investment portfolio.

Learn to tune out the noise of market doldrums to some extent and stay focused on the long term outlook that initially convinced you to start investing.  Whatever you decide to do during market downturns, don’t be quick to push the panic button.  Always make your decisions with a clear head and guided by reliable information.