Resisting the Urge to Sell
Facing a downward-trending investment portfolio due to market fluctuations can be a daunting experience for many. Despite this, pulling money out of the market is generally considered one of the worst decisions you can make during tough financial times. Here are some ways to stay calm when facing these challenges.
Overcoming the Action Bias
When fear sets in, people generally tend to act, even when doing nothing might be the best course of action. Most people are tempted to sell when the market is at its lowest and buy when it’s at its highest. One way to avoid this tendency is to ignore your investments and check them on a regular schedule, such as monthly or quarterly, rather than daily. This can prevent you from making fear-based decisions that could be counterproductive.
Trusting Historical Trends
Looking at past market performance and long-term trends can help put short-term losses into context. While markets will always experience ups and downs, they generally trend upwards over time. Sticking to a solid investment plan and trusting the long-term historical trends can help you feel more confident that you’ll eventually recover from any current losses.
Creating a Volatility Plan
Market downturns are a normal part of the investing process, so it’s important to create a plan for how you’ll handle them. This could be as simple as committing to a head-in-the-sand strategy during downturns or proactively incorporating market fluctuations into your investing strategy.
Preventing Fear-Based Decisions
Being prepared for market changes and having a plan in place can help prevent you from making fear-based decisions when faced with a downturn. Keeping your emotions in check and sticking to your investing strategy will ultimately lead to better long-term results.