The worst thing that you can do in a global financial crisis is not sticking to your plan. In 2008, we saw far too many people pull their investments out of the stock market during the recession at the lowest points.
This will lead you to selling stocks and mutual funds when prices are low and having to repurchase your investments when times are better and ultimately prices are higher. The best thing you can do is to continue on your financial plan that you established.
Worst Things You Can Do In Global Financial Crisis
A Declining Market Is Not The Time To Sell
Trying to time the stock market’s rise and fall can cost investors thousands in lost profits. Inevitability, timing the market does not work and you enter and exit the stock market at preciously the wrong time costing you profits or increasing your losses.
Not only do you have to time your exit when you are timing the stock market, but you also have to time your reentry back into the stock market as well. Not only do you have to get it right, but you have to get it right twice. This is one of the main reasons that trying to time the market can shave points off of your profits in both selling and buying investments.
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Set Selling Rules If You Really Want To Sell
If you really want to sell your investments when stocks start tanking, you may do better by setting selling rules that can help give you a game plan for selling your stocks or mutual funds. Some financial experts such as Jim Cramer recommend automatically setting a stop-loss order for a certain percentage.
For example, maybe you want to limit your losses to the downside to 10%. So, if you purchase a stock for $50 per share, you may want to consider selling your investment if shares dip below $45.
Stick With Your Investment Plan
The best thing that you can do in a market downturn is nothing. You should continue your investing and stick to your plan. Some of the best investing plans include dollar cost averaging. Dollar cost averaging can help you continue to purchase shares of stock or mutual funds at set intervals regardless of where their prices are.
Dollar cost averaging lets you purchase shares of an investment with the same amount of money every month. When stocks are higher, you purchase less shares with the same amount of investment. But, when stocks prices are falling, you will purchase more shares than before with the same amount of money.
There are many reasons for selling an investment, but you do not want emotion to be the driving factor in your decision. Sticking to your plan and using dollar cost averaging will let you take emotion out of your investment choices.
Sticking to your investment plan during a global financial crisis will allow you to continue purchasing shares of an investment using the tried and true method of making money….buy low and sell high. While this may seem like a just simple saying, it is always true and has never been more right.
If you want to earn money in the stock market with stocks or mutual funds, withdrawing your money when times are tough is not the answer. That is the time to stick to your investing plan.
What about you? What do you do during a global financial crisis?