Markets open down three percent. What do you do? If you’re thinking, “Sell!” or “Panic!” Perhaps you should take the advice of some of the world’s savviest investors and turn away from the market for the rest of the day. You may be envisioning dollar signs flying out of your wallet and might be inclined to sell. However, most market gurus will say that if you have a wise strategy in place, it's typically best to stay the course.
Billionaire investment guru Warren Buffet told CNBC in 2016 that selling in a rush may not be the best strategy. “If [worried investors are] trying to buy and sell stocks, and worry when they go down a little bit … and think they should maybe sell them when they go up, they're not going to have very good results." Such a panic move could unbalance your portfolio where you are either taking on more or less risk than you should.
1. Resist Panic Selling
Typically panic selling is triggered by events that may lower the confidence level of investors causing them to sell and when this occurs on such a wide scale sharp declines in pricing tend to occur. Selling in a rush to get out of a down market could have long-term implications and often cause you to miss out on some big gains when the market corrects.
2. Protect Your Nest Egg
If you’re really worried about things like a home saving or retirement fund during a downturn in the market there are a few steps you can take to protect these funds.
Ask your financial advisor about reducing/increasing the amount of risk you have. You can separate your money that you’ll need in the short term by investing in less riskier investments and increase your risk by using your “long term” money that you plan on using down the road. You’ll at least feel more confident about your portfolio and more comfortable with fluctuations in the market.
Don’t invest money you think you may need right now! This is especially important for retirees who may only have investment income to rely on as they get older.
3. Focus Long-Term
When you start to see headlines of the stock market declining it can be easy to go into panic mode. However, when you sell investments in a downturn you’re essentially locking in your losses. When the market eventually stabilizes you'll likely be left chasing much higher prices. It's always a good idea to keep your long-term goals in mind before making any decisions in a downturn and consulting with a financial advisor before making any moves.
Don’t give into the noise and don’t panic. You can’t judge your investment strategy all of a sudden; you must step back and look at the bigger picture.