There have been some turbulence in the stock market recently. There are been more days than not that have seen a hundred point swing one way or another. But, you shouldn’t fear a falling stock market.
So may even think that the US stock market is in a financial crisis. So, what is an investor to do during a turbulent, falling stock market?
3 Things To Do In A Falling Stock Market
Tune Out All Of The Noise
One thing that I do that many people do not understand is that I don’t watch the news. There is so much negative press out there that I often will get bummed out with all the news.
And, now with hundreds of television stations and many dedicated strictly for financial news, there are so many people out there with an opinion about a falling stock market. Everyone has an idea or a thought on where the market is headed, why things are happening the way they are, and of course what you should do. And, do nothing is hardly ever on that list.
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It is hard to earn a commission or capture people’s attention if you tell them to do nothing. But, often that is exactly what you should be doing…nothing.
So, turn off the television. Tune out the noise. There is so much noise out there.
Understand Your Risk Appetite
Many people used to think that they knew how much risk they could stand with their investments until the recession of 2008 hit. It is easy to tell your financial planner or stockbroker that you have a high tolerance for risk when filling out a survey on paper with theoretical scenarios.
But, it is a completely different thing when you are actually faced with a 30% decline in your 401k retirement fund. Truly knowing how much you risk you can stand can help you from needlessly selling losing investments at the wrong time.
If you know that you can’t stand many market swings because your low risk tolerance, then may want to consider a lighter load of stocks in your portfolio. Knowing your risk tolerance ahead of time helps you set your balance between cash, stocks, bonds, and other assets. If you choose correctly from the beginning, you may be able to keep yourself from wanting to sell losing assets so often in a falling stock market.
Buy Quality Stocks and Mutual Funds
Stocks are on sale during a falling stock market. Now is a great time to buy stocks and mutual funds.
If you already have a great financial plan in place, now is not the time to abandon it. There have been a lot of great companies that have been dragged down in the stock market’s turmoil that do not deserve this rough treatment.
Entire industries in the stock market often get rocked together while the best in breed slides with the entire industry despite its dominance. Many companies get irrationally punished when they are caught up in the market turmoil, and their downfall often have nothing to do with the company’s long-term profit projections or valuation.
Classic fundamental finance says that a stock price is the present value of all of a company’s future profits. With the recent market turmoil, do you really feel that the long-term outlook for some big, brand name American companies have dropped by 10% or more in a matter of days? Of course not. That is why they are on sale.
You do not have to take the recent market turmoil and falling stock market sitting down. There are things that you can do to help you in a turbulent stock market environment.
What are you doing with your investments when there is a falling stock market like we’ve seen recently?