Recently, I’ve found myself closing my eyes when checking my investments, cautiously peeking as if I were facing some horror rather than just numbers. The current financial news only adds to the unease, with headlines warning of possible recessions, trade conflicts, and impending market declines.
Such turmoil tempts me to pull all my funds out and hide them away, perhaps in the comfort of my mattress.
However, regardless of how daunting a market dip appears, I recognize that withdrawing my money during a downturn is the worst decision I could make. The only way to turn a temporary loss into a permanent one is to sell off my investments.
While it’s one thing to understand that maintaining my position is crucial, it’s quite another to actually put it into practice. If gloomy financial forecasts make you consider cutting your losses, it’s essential to remain composed. Here are some strategies to help you stay steady even when market conditions are unsettling.
It’s Okay to Take a Breather
While burying your head in the sand often gets criticized, there are indeed times when it can be the wisest choice. This stems from a cognitive bias that compels us to act in the face of fear—we mistakenly believe that any action is better than inaction. This fear leads many to sell their stocks at the worst possible time and purchase at market highs.
As resisting the urge to “Do something!” during falling markets can be incredibly tough, a more practical approach is to simply avoid checking your portfolio excessively.
This doesn’t mean you should ignore your investments altogether. However, constantly digesting financial news and monitoring your portfolio daily can drive you to make impulsive decisions based on fear or greed, rather than adhering to a sound investing strategy.
It’s wiser to schedule regular checks on your investments once a month or quarterly. This way, you can stay informed enough to maintain your asset allocation without succumbing to unnecessary anxiety. (See also: 5 Strategies to Invest Like an Expert Without Financial Advisors)
Find Reassurance in the Past
Although the cautionary phrase, “past performance is no guarantee of future results,” is frequently reiterated by financial experts, there’s merit in analyzing historical market trends. A look at long-term patterns will reveal that, over time, markets typically show an upward trajectory.
While understanding that the market eventually rebounds doesn’t lessen the pain of short-term losses, it does help in gaining perspective on current dips. Investors who remained calm during the downturns of 2000 and 2008 eventually witnessed their portfolios recover. Amidst the stress of declines, having faith in a robust investment strategy and historical trends can empower you to remain focused on the long game. (See also: Preparing Your Finances for Potential Economic Slowdowns)
Formulate a Volatility Strategy
One reason we often react so strongly to market volatility is our tendency to overlook its normalcy within financial fluctuations. Market corrections are an expected occurrence, and anticipating several throughout an investing career is wise. With the expectation that prices only rise, even slight downturns can feel overwhelming.
To manage these expectations—and the ensuing anxiety—consider crafting a plan for how you’ll respond to downturns.
Your volatility strategy might simply involve embracing your “head-in-the-sand” approach during declines. Knowing that you’ve decided to limit your portfolio check-ins during tough times provides clarity.
Your plan can also be proactive. Understanding that market drops are a natural aspect of investing allows you to determine in advance how you might use these moments to your advantage. For instance, you may choose to increase your investments during downturns instead of viewing them solely as negative. (See also: 7 Simple Methods for Building an Emergency Fund from Nothing)
Stay Calm
Humans aren’t inherently equipped to be rational investors, which is why emotional responses often get in the way of sound investment strategies, particularly in times of fear. Selling your assets during a market downturn due to anxiety is akin to applying a permanent fix to a temporary issue.
Consider how you will react to distressing market developments before they occur. With a pre-existing plan, you are more likely to approach challenges with reason rather than knee-jerk reactions driven by fear.
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