Want to know what you should do when the market declines by 3%/800 points in one day? Don’t worry; I’ve got you. In fact, I can sum it up in two words…
Yes, that’s it, end of the article.
Ok, ok, so maybe I should elaborate on this a little more since keeping a level head might not be as easy as these two simple words. Keeping a level head is an excellent start to attacking market volatility, but here are three more tips of things you can do on a down day in the market.
#1. Take inventory of your invested assets to see how exposed you are (or aren’t) to the day’s volatility. Typically when you hear “the market is up” or “the market is down” it’s usually a reference to the Dow Jones Industrial Average (DJIA). The Dow is a proxy for the market and contains 30 domestic large publicly traded companies. While these companies control a large percentage of the economic capital in the US, it’s worth noting that this is just one of the markets you could be invested in and it’s just one type of asset that you may hold.
Examples of other markets include the fixed income market and the real estate market.
Examples of other asset classes include foreign equities, options, and precious metals.
So the extent to which you’re impacted by a down day in the market really just depends on your portfolio, so it’s best to get a handle on your exposure.
#2. I recommend assessing your exposure to in respect to your financial plan. When you do this, you should consider the following:
The amount exposed compared to your total assets.
Your time horizon.
Your liquidity needs which includes:
Your need to access the impacted investments.
Your total need for liquidity from any of your assets.
The strength of your financial situation.
Do you have more money than you know what to do with or are you drowning in debt?
Any other changes in the near future like retirement, a new baby, job promotion, or the sale of your home.
#3. Do not let your emotions drive your decisions to buy or sell any of your investments. In fact, this is a common mistake during times of volatility. Research shows that many investors will sell off when they see a dip, which is the opposite of the old adage “buy low, sell high.” If your account is down by 3% one day, I’d argue that it’s probably not the best day to throw your financial plan out the window. Instead, it’s best to refer to your investment strategy prior to making any decisions
I don’t have a crystal ball and am not able to tell you what exactly will happen in the stock market over the next week, next year, or the next decade. What I can say though is that we can expect to see ups and downs in the market over time. And the ups and downs can feel a lot smoother if you have a plan in place and stick to it. Have you taken a look at your investment strategy recently? And will it help you to weather the storm? CLICK HERE if you’d like a second opinion on your financial plan.
The information contained is derived from sources believed to be accurate. However we do not guarantee its accuracy. The information contained is for general use and it is not intended to cover all aspects of a particular matter. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. The information contained is not appropriate, by itself, to guide investment decisions.