Investing your money in the stock market is probably one of the best investment decisions you’ll ever make. It shields your money against inflation, and it offers the highest return on investment. The market, however, is not always stable. At times, stock movement is nauseating, swaying unexpectedly between gains and losses. And for the many, the immediate reaction is to sell.
How do you exactly deal with the stock market’s volatility? The experts have some advice.
Even the most experienced financial professionals who manage billions in assets admit that they don’t always know which direction the market is heading. So, in such a situation, the best thing to do is to stay put. It may be tempting to make drastic decisions, but the smartest action you can ever do is not to act at all.
Stock market experts believe that volatility is something investors need to get used to in order to gain, because it is possible to recover after several years.
David Shotwell, financial planner at Lansing, Michigan-based Rutter Bear, said that investors should avoid making knee-jerk emotional reactions. He believes that volatility is the price investors have to pay to have better returns over time. “… The ones that lose are the ones that get out at the wrong time, when things are low,’’ he said.
Revisit the Basics
Now, if the temptation to sell stocks is just irresistible, the best thing to do is to revisit the basics according to the experts. This entails asking yourself the following questions:
Do I have the right mix of investments for my age?
Am I appropriately diversified among small and large companies?
If you think your assets need rebalancing, consult a fund manager for advice. And if you believe that your company is moving downhill and isn’t likely to recover, then cash out your stocks. Doing so will protect you financially if the market falls some more. However, just remember that cash doesn’t earn anything. So, you better plan your next investment right away.