What You Should Keep in Mind Amid Market Volatility
Investing in the stock market can be a nerve-wracking experience, to say the least. The US markets have been some of the most successful and powerful in the last century of human history, but the markets are never sunny every day. There are downs to correct the ups, and even when the markets seem invincible, downturns are lurking just around the corner. After all, the Dow Jones Industrial Average alone had a remarkable year in 2017, setting one record close number after another.
Entering 2018, that streak appeared almost invincible; almost. February 2018 brought a lot of frustration and nerves on the market as the Dow officially entered correction territory, losing more than 1,000 points on February 8th alone. When the markets get volatile, it can scare away a lot of investors. Here is what you should keep in mind when times get tough and markets enter a phase of correction.
Invest for the Long Term
The stock market is not a place wherein many people make a fortune overnight. Sure, you might hear about "overnight" success stories, but the use of that phrase is relative. There are very few investors with the know how to time the markets and make a fortune overnight; buying a stock at a low point just before it is set to jump upward. If you want to succeed when the markets get volatile, it is important to invest for the long term. This means maintaining your composure and staying calm when the waters get choppy.
Throughout modern American history, market correction has invariably been followed by renewed growth as the market, and the economy, weed out dying niches in favor of new industries that power the next wave of growth. The National Bureau of Economic Research has a detailed history of the boom-bust cycle dating to the start of the Great Depression. Investing is a long-term game, and the markets should be played as such.
Take Advantage of Mr. Market Instead of Being Led by Him
Although timing the ups and downs of the market can be difficult, that does not mean you cannot look for opportunities to take advantage of drops in the market. Your investing strategy should never be led by the ebb and flow of certain stock types or market fluctuations. Rather than investing reactively, you should work to invest proactively.
Working with a financial advisor or other investment specialist, you can put together a portfolio of proven stocks and bonds that have shown the ability to weather the storm of downturns and deliver solid returns when the markets return to periods of growth. When the time is right, you can also take advantage of the dips with the right combination of stocks and bonds that allow you to buy low and sell high in the future. Remember though, focusing on the long term remains important to greater success in the market.
Know the Difference between Price and Value
It is hard to look at stocks for certain industries or companies and not be swept away by sticker shock. Some stocks have extremely high prices, while others have very low prices. However, the price you pay and the value you receive are two very different things. For example, some tech stocks are priced very high because of their current value. It might be enticing to buy those high-priced stocks believing you will receive a lot of value out of it as they continue to grow, but what happens when those high-priced stocks have no more room for growth?
Sometimes the lower stocks with greater room for growth offer greater value. Just because price is low, that does not mean the value of it to your investment portfolio is. The same concept applies to high-priced stocks. Just because you pay a lot to secure a few shares does not mean you are going to gain much value in the long run.
Investing is a tricky game, and it will test the patience and sanity of many. If you can keep these simple factors in mind when you are investing, you will enjoy the highs and weather the lows without a lot of stress and heartache in the process. For more investment assistance or for building a retirement plan, or any other financial matter, call Hughes Warren!