The stock market has been very tumultuous during the last several weeks and there could be a few more weeks of this type of market activity as different events will impact the market. The current environment makes it very important to remember a few key principles for investing.
How do successful investors handle a downturn?
Most successful investors remember that number 1 principle of investing which is to take a long term view. Today’s losses can be made up just as quickly as they were lost. Changing strategy all of the time usually isn’t a winning investment strategy.
What is a mistake that many can make during a time like this?
The biggest mistake the many investors make during a time like this is trying to time the market. The problem is that many sell at the lowest and get back in when the market is higher, missing out on the opportunity to regain their losses.
Is there a way to lessen your exposure to market downturns?
One of the best strategies is to stay diversified with your investments or 401k allocations. This tactic usually minimizes the impact of any market downturn. The key is making sure you truly have different investments types, too often people confuse having many different investments of the same type as diversification.
Is there anything else that investors should be doing?
Only make decisions based on sound financial information and don’t let opinions or experiences of others drive your decisions. Also, don’t let your emotions drive your decisions because emotional decisions are often not the best move during a market downturn.
What is the best way to make less emotional decisions?
One of the best is to work with a financial advisor, especially one well versed in the planning needs of your situation. A financial planner can guide you through market volatility and help you construct a solid plan that meets your needs and situation while lessening your impact to any downturn.
Are there any mistakes that are made after a market recovery?
For some people it is not taking the appropriate amount of risk with their investments after a downturn. Being too conservative or being too risky are both equally problematic for long term financial success. Once again, the best way to make the right decision is to use sound financial information not emotions or water cooler information.