Try to avoid reacting emotionally when the markets are turbulent.
Experiencing market volatility is a normal part of investing in stocks. Still, when the market goes down, it’s natural to feel apprehensive and wonder how long the slide will last or what you should do.
Here are a few things to keep in mind: Historically, stock market corrections have occurred about once a year. The last correction in the U.S. stock market prior to the one we saw last August took place in August of 2011; it’s actually unusual to experience four years without an adjustment. Analysts often view these adjustments as a necessary evil to cool off an overheated market. Typically, corrections last three months or less.
While corrections are inevitable, it’s nearly impossible to predict when they will occur or how long they will last. Whether we’re currently in a sharp correction or the beginning of a bear market remains to be seen. That’s why it’s so important to continue to think long-term and not react impulsively or try to time the market. History has repeatedly shown traditional asset classes – such as stocks, bonds and bills – have grown in the long run. If you take money out when the market is down, you may significantly reduce your returns and disrupt your long-term plans. There’s just no way to know when the best or worst trading days will occur.
It’s human nature to get anxious when the market is troubled, but staying calm is generally the best approach. While past results don’t guarantee future results, knowing downturns are not unusual and have been temporary may reduce concerns. Stock market corrections can actually be a good time for long-term investors to pick up some high-quality stocks at bargain prices. They also serve as good reminders to reassess your holdings and ask yourself if the reason you originally purchased them is still valid today. If your answer is “yes,” you may not need to take any action.
Patience and a diversified portfolio can help you manage market fluctuations better.* If you have questions or concerns about your individual situation, please call our office to set up an appointment for a thorough review of your portfolio and long-term investing strategies.
*Diversification does not guarantee a profit or protection from losses in a declining market.