Falling markets? Don't panic, it's not the first time
With inflation and the war in Ukraine continuing to worry investors, volatility and uncertainty are the two words that characterize the markets more than ever. Never before has it been difficult to make the right investment decisions. In these cases, the first thing is to try not to panic and move as rationally as possible, leaving emotions aside.
Here's a three-pronged approach for investors to cut through the confusion:
- Don't attribute every stock move to the invasion of Russia. When you see stocks dropping and they have nothing to do with the event that is causing the decline, there’s no need to panic. If you sell, you will end up losing money.
- It helps to be familiar with the companies you invest in, and
- It's good to take advantage of the opportunities that exist, remember what matters and what doesn't.
Other reminders include:
- Invest without getting emotional. In a volatile market, it's good to keep emotions out. Sudden dips and sharp rises in the stock market are a normal part of the investment journey. Acknowledge your emotions but don't act on them, whether you want to sell during a big dip or buy during a rally.
- It's not the first time. Refraining from taking action may be easier said than done, but there are some techniques for managing emotions so that you can make more rational decisions. First of all it is good to remember the past, because, when the stock market goes down, remember that it is not the first time it has happened. The stock market has overcome so many hurdles — 9/11, the Great Recession and the 1987 market crash. What happened every time? The stock market rallied and claimed new highs. It is helpful to take deep breaths. It may seem trivial, but taking a few deep breaths really works to deal with the onset of panic. Doing breathing exercises can decrease blood pressure, heart rate and stress hormone levels.
- Consult a financial expert. This will give you an opportunity to re-evaluate your investment approach and assess the level of risk as to whether your portfolio is perhaps not as diversified as it should be. Put some time between your urge to act and your behavior because if you can put some time between these two things, you are more likely to calm your brain and make a good decision.
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