After eight
months of steady gains, stock-market volatility has again rocked investors.
When stock
markets tremble, the advice from financial advisers is simple: Stick to your
investment plan.
That's easier
said than done. If your financial house is on fire, you want to fight the
flames or flee. To stand back, watch and periodically throw more money on the
bonfire is tough even for the most seasoned investor.
Here are some
ways to sidestep the natural emotional triggers that can be costly during the
next market correction or crash.
Beware of
'market crash PTSD.' The last bout of volatility was during February's
correction, in which the major indexes tumbled by more than 10 percent,
troubling a market that in 2017 had enjoyed a five-decade low for wild moves.
Sudden market
turns have a way of stirring up memories of 2008's Great Recession. Market
corrections and recessions are inevitable, but there's no reason to expect that
a downturn of an equivalent magnitude is right around the corner.
Ignore your
portfolio's peak. Humans are hard-wired to feel drops in portfolio value more
than equivalent gains, a phenomenon known as "loss aversion." So when
you see the value of assets below their peak, the urge is to stanch the loss by
selling. But really, the smarter thing to do would be to hold — or even to
purchase some more of these beaten-up stocks, a practice known as buying the
dip.
"You need
to look where you are at now vs. where you started — don't look at your
peak," says Patricia Jennerjohn, a financial planner in Oakland, Calif.
"Look how much your portfolio has grown since you started — keep that in
perspective."
Tune out
financial news and panicky ads. When global markets drop, wall-to-wall coverage
by the financial media creates a sense of impending doom.
To protect
your portfolio — and your sanity — advisers recommend not watching daily moves,
but instead checking in monthly, quarterly or annually. Also, resist those
strident market pitches online that proliferate in turbulent times.
Keep cash in
the market. The return of volatility once again raises concern that the stock
market finally will descend into bear territory, defined as a drop of at least
20 percent from the most recent high. Even though there have been five slumps
in excess of 10 percent over the past nine years, U.S. stocks still are in the
midst of the second-longest bull market in history. During periods of volatility,
it can pay to keep calm and invest on.
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