The recent market drop has investors everywhere panicking. The odds are pretty good that the financial storm will soon pass and in a few months, the market will have fully recovered. During rapid down moves, it always seems like this time it is different and we are in for a long term bear market.
But investors felt the same way after the internet bubble burst and 9/11, during the global financial crisis of 2008 and fearing the collapse of the European Union in the 2010s.
The current correction may continue for a while but there has never been a market correction that didn’t end.
Below are three things you should keep in mind.
1. Corrections are a normal part of investing. They are coming and going.
2. The biggest challenge is managing your psychology.
3. Missing just a few strong days may reduce your return big times.
4. Don’t buy heavily on margin, if you do not have the cash to back it up.
As a long term investor, don’t throw in the towel and go to cash. Once the negative sentiment shifts, the market will rebound. The very best days of the market often follow the very worst. If you’re a long-term investor, rebalance your holdings. Buying stocks while they are cheap is a reliable way to boost your long-term returns. Do you still hold cash, start buying slowly when the market dips further. The biggest threat to your financial future is not the drops your portfolio suffers during a market correction. The biggest threat is not to be invested at all.
Sven Franssen