How to Keep Cool in a Down Market - dummies

How to Keep Cool in a Down Market

Seeing the value of your investments go down can often be emotional, but it’s important that you don’t panic, and stay calm and cool. The markets have produced consistent increases in value over very long periods and through all kinds of challenges. Don’t let a market slump make you do something you’ll regret later or derail your investment program.

When the going gets tough, the urge to bail out of stocks can be strong. But panicking can wreck an investment plan faster than anything. Being out of the market won’t allow you to keep up with rising costs of living. In addition, repurchasing later may result in a cycle of buying high and selling low. If you haven’t developed a long-term investment plan, do it now. If you have, review it to make sure it still reflects your financial goals.

Here are some things to consider when markets are rocky:

  • Communicate with your financial advisor, if you have one. Financial advisors earn their keep in turbulent times, and a good one will be able to walk you through the holdings in your portfolio and reaffirm your investment strategy.

  • Do nothing. Sometimes doing nothing is preferable to action. Try leaving your account statements unopened for a while. When you look at them every three months or so, you may find the account values are higher than you thought, especially if you’re adding to them on a regular basis.

  • Don’t watch, listen to, or read too much commentary. During a downturn, the news media has plenty of disheartening stories. The talking heads and bloggers are there for infotainment, not to make you money.

  • Act less like a day trader and more like legendary investors Warren Buffet and John Bogle. They see market madness as normal and transitory and take advantage of opportunities in the hard times. Check your stomach for risk. If a big dip invokes too much anxiety, consider putting a larger proportion of your portfolio in less risky assets, like bonds and even cash. But be sure that doing so doesn’t jeopardize your long-term goals.