I'm a financial planner, and there are 2 smart ways to manage your investments while the market is dropping
Courtesy Marguerita Cheng
- The coronavirus is wiping out stock market gains made since the end of the Great Recession, and you've probably seen a dip in the value of your investments.
- Selling now would be the worst decision, though - the value of your portfolio will rise once this market volatility passes. The best bet is to stay the course and leave your investments alone.
- You could also consider investing more now while shares are "on sale" - your investment may grow exponentially in value over time.
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As the coronavirus pandemic sweeps the globe, markets are reacting with more volatility than usual. The uncertainty is causing the price of shares to drop, and experts are left speculating whether the market will enter an extended bear market or if the economy will fall into a recession.
During all of this chaos, what should a savvy investor do?
Don't make any changes to your portfolio
First things first: Don't panic. No matter how tempting it is to cash in your investments, that's probably the worst thing you could do right now.
Investors have always said to stay the course in times of uncertainty, and history has shown that markets will eventually rebound. The adage that slow and steady wins the race is true.
It takes about 121 days, on average, for markets to recover from a correction. Even though seeing the value of your 401(k) drop off is unsettling, selling now will lock in your losses. You can't write those off and building your portfolio back up will be an uphill battle.
If you sell now, you're selling when the price is low. You paid good money for the investments in your portfolio. It makes little sense for you to sell them for such a tremendous loss. By the time the market recovers, and you feel comfortable jumping back in, the same stocks you sold at a loss could be priced much higher. When you sell low and buy high, you lose money.
Statistics show that you can't time the market. Even the most experienced brokers who spend all day, every day, analyzing investment funds can't predict when the market will swing high or low. To weather the storm that COVID-19 has brought to the US, stick to your current financial strategy.
Investing more money now is another option
Another approach you can take is to use market volatility to your advantage. You might look at the dip in prices as a sale on stocks. If you continue your investment strategy and maintain your ongoing allocation, you can get more for your money because of the drop in prices.
As the nation stares down the coronavirus pandemic, don't be afraid of what the market is doing. No one can predict the future, and short-term market fluctuations have very little impact on long-term wealth.
Don't buy into the excitement and let your emotions override your judgment. Stick to your investment plan, and stay the course. When this is over, and the markets begin to stabilize, you'll be glad you had the opportunity to participate in the recovery.
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