3 Ways to Safely Handle Stock Market Volatility
After the great run the stock market had in 2013, 2014 is turning into an investor’s worst nightmare. The volatility in the stock market is back, with the Dow Jones and S&P 500 declining and advancing close to 100 points daily. What is an investor to do in order to survive this emotional roller coaster ride? Below I present 3 timely tips to help you navigate the choppy investment waters safely.
Dealing with Stock Market Volatility
- Forget The Daily Movement and Look Long-Term
It’s easy to get emotionally involved on a daily basis when you see the market plunging 300 points as it recently did. You best option in handling this volatility is to remember that you are in this for the long-term. Over the short-term, there are going to be bad days, but you have to remain focused on the long-term.
An analogy I like to use is fighting with your spouse or significant other. When you get into a fight, do you decide to end the relationship because of how bad the fight was? Most likely you work through the fight. You don’t give up on the long-term relationship simply because of a short-term incident. Same thing applies to investing. Don’t be quick to pull the plug and sell your holdings. Stay focused on the long-term.
- Reevaluate Your Goals
When you started investing, you created an investing plan. Now is a great time to pull it back out and read through it. Why are you investing the way you are? What are your goals? Refreshing yourself with these things will help put you at ease and push through the volatile times.
At worst, reviewing your investing goals might help you to realize that some goals aren’t goals any longer, you may now qualify for retirement catch-up contributions or you should be in a less stock heavy portfolio. Make it a point to review your investing plan so that you can feel comfortable investing the way you do.
- Find A Hobby
The media is all about getting a reaction out of you. In other words, they want to make you emotionally invested in the story. That is why they use headline grabbing adjectives, pictures and graphics. The more emotionally involved they can get you to be, the more you will watch. This allows them to charge more for advertisements (since more eyeballs are watching their programs) and make more money. By finding a hobby, you can more easily tune out the hype that they are selling.
I hit the gym as my hobby or go for a run or bike ride. But anything you love to do to avoid stress is a great way to get you away from the media jamming down your throat the decline in the stock market. The less you pay attention to the hype, the less likely you are to make an emotional decision. This is a good thing since we never make good decisions when we are emotional.
The more you can focus on the long-term, remind yourself of your goals and tune out the media, the more successful you will be when it comes to investing. Remember, volatility will always be present in the market over the short-term. The long-term trend of the market however, is positive. Learn to focus on the long-term and take the short-term volatility for what it is – bumps in the road on the journey to your goals.
Investing is definitely long term. Putting money into the market for the short term is known as gambling. My wife and I continue to invest in low-cost passive index funds with new money every month, no matter whether the market is up or down. Over the long term, we have done very well.