Survival of a Down Market
To climb a markets peaks, you must first ride through the valleys. It can be tough to hold back your emotions and urges to sell while you think you can during market downturns. This is just "the nature of the beast." Eventually markets will reach new highs after a few downturns, but it is difficult to manage emotions as many investors find themselves fleeing for safety in fixed income and cash investments. When the market does in fact turn around, these investors find it very difficult to catch up with the market. When you suffer a large loss and bail out, you will need an even larger gain than your loss to both make up for the loss and time. This will not happen if you sell in fear and settle for a loss, but it will leave you cringing once again as you watch the climb to new highs.
Remember this: If you adopt a plan that makes sense for you, you have to believe in the effectiveness of the plan and its logical approach. You will need this plan to keep your portfolio on track to wade through the down times. However, a logical plan will not convince you to stay on track alone because every downward spiral, every logical market voice will be urging you to "cut bait and run." Only your own logical conviction and sense of market soundness will keep you and your portfolio on track and in the market.
The market will fall to dreadful lows and you will start to believe all market nay sayers and convince yourself that the country is headed to a new market turmoil. Keep in mind that when your emotions are high, you must take the extra effort to stay on track and resist the fuzzy temptations. Remind yourself that history has proved itself time and again that all market downturns have close upturns sure to prevail. But when you wake up, and the market does turn around for the better, you will be tempted bet the farm, mortgage yourself to your teeth, and buy even more stocks. Here's hint, don't do this- simply stick with your plan.
Know that this country has been through many bear markets and many bull markets. Over the past century or so, this country has been through upwards of 20 bear markets. Every bear market has been followed by a bull market leading to record highs. Considering this, you should know that you are investing in something that has gone through tough times, only to prevail and come out even stronger. When you buy a stock at a peak, it will fall. But you won't cut bait and run because you now know that it will recover just as it has always has. This understanding is your basis of which you can build your financial independence.
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