How to Deal with the Stock Market's Ups and Downs
The stock market can give any faithful follower ulcers and high stress. On any given day the stock market can soar to new heights, crash to new lows, or experience any degree of ups and downs in between. For novice and moderate investors, dealing with the constant ebb and flow of the market can be stressful. Here are a few helpful hints to deal with the stock market's ever-changing environment.
Fluctuations are a natural part of the market because stocks will self-correct eventually. Ignoring the day-to-day movements of the market insulates you against periods where all stocks are down, but is also imperfect because it shields you from taking advantage of broad increases across the board. Whenever possible, avoid constantly hitting "refresh" on MarketWatch, Bloomberg, Yahoo! Finance, and other news sites.
Broad movements in the market are an aggregate of price changes of individual stocks in the index, and individual stocks may rise more or sink less than the overall market. This fluctuation is based on factors not directly related to the overall movement of the marketplace. Be cautious in your approach to any dramatic news headlines that indicate a potential plunge.
As noted by an investor speaking to Forbes though, it never hurts to continue investing even while ignoring fluctuations. This investment keeps the average cost of shares reflective of purchases at both high and low prices. Buying when others are panicking can be a solid side effect of the fluctuations, just make sure you are not the one panicking!
Pay Attention to Movements
While you should ignore fluctuations, it is smart to pay attention to general movements of the market; the key to success is not reacting specifically in response to fluctuations. Continue to invest regularly and do not react to the highs and lows. While doing so, watch your holdings to see how they respond to those fluctuations. Your portfolio may mirror the movements of the market, or move counter to the market.
If you are going to watch the news on market movements, observe the impact on markets of global economic and political news. Announcements by the Fed, unemployment reports, and consumer confidence data can lead to changing conditions worldwide. Take note of the price and market fluctuations based upon actual performance, and track the patterns in the market; remember, market fluctuations are normal. Your investments are highly likely to increase over time, but it does not generally occur in a straight, linear pattern upward.
Take Action Based Upon Wise Information
As you look to make changes to your portfolio, make sure you have a game plan to help you avoid emotional decisions based upon the ups and downs of the market. The action you take should be specific and based upon a combination of market changes, your timeframe to retirement, and personal financial anticipations.
There is no need to rush to sell shares at a loss simply because they have lost value in the moment, especially if you are feeling a sudden rush of fear that you will lose money in a declining market. Just as important, do not chase after high-performing stocks just because it is popular and the price is on the rise.
Finally, if you are going to invest in the stock market you need to be prepared for the ups and downs of the market. If you follow these tips, you will be prepared for those ups and downs based upon the observations you have made and common sense.
For more information, please contact Paul Miller at Indian River Financial Group.