3 Tips to keep stock market declines in perspective
I hope you all had a lovely weekend celebrating Mother's Day. My boys took me out to lunch yesterday to downtown Palm Harbor, FL and it was a nice break from cooking + technology.
I am making a real effort to be more present on weekends (sorry if I don't respond as quickly as usual) because I'm realizing my sons are growing up way too fast and before I know it they will be teenagers...and I don't know about you, but when I became a teen my friends were my biggest priority. So I am soaking up the love and cuddles while they still think I'm cool!
Now that I'm back full swing into the work week and the market continues to decline (and with it all our accounts, because yes I'm just as invested as you are) here are my top 3 tips to remember in lieu of panicking when you see your account values drop:
1. It's perfectly human to be worried when the stock market drops.
I blame our cave man instincts, we are programmed to fight or flight in the face of danger. Back in the cave days we might have encountered a bear and had to fight or run to save our life.
In our modern society we don't encounter bears often...but we do encounter market declines and "Bear Markets" which can feel quite frightening and cause a similar response of fear. Just remember, if you sell when the market is down you are locking in that loss. Also, market corrections happen almost every year, some refer to it as the "price of admission" when investing.
Here's a great article from Morningstar on market declines: https://www.morningstar.com/articles/1082270/what-is-a-market-correction-and-what-happens-next
2. I recently re-read a book titled "Money and your Brain" and thought it fitting to remind ourselves to treat price declines of stocks and socks in a similar fashion. Especially for us young investors who still have time to potentially recover from market declines/paper losses.
If you think of stocks more similar to socks, when the market declines by 10% from the price you paid previously you can buy more shares (within the "basket of stocks" or funds you're invested across).
So remember, while market corrections can hurt short-term investors, they present potential buying opportunities for those with longer investing horizons.
3. Last but not least, remember you have a strategy in place (diversification, low cost investments, a mix of growth and dividend stocks, global exposure) and your investments match your time horizon. This is key, because your money and investments should always be aligned with how long from now you'll need that money. If we are talking retirement, you have 20+ years.Sources:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual.
No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a diversified portfolio. Diversification does not protect against market risk.