Posted On 27 Feb 2020
One of the most potent facts you need to know when there is a drop in the market is this simple, yet factual, statement — A drop in the market is normal.
From there, it becomes easier to have a calmer frame of mind. A drop could mean a correction in the market, which means that the prices will eventually go up.
First things first, panicking never saved anymore. Think about it. There are countless instances when panicking has made a person opt for the easy way out without thinking things through more clearly. It is human nature to think that options are running thin when they are panicking. But if you can calm yourself down and try to relax some, you will enable yourself to be in a healthier frame of mind to consider more options.
Some things that can help you stay calm is to remember why you are investing. It is smart to think long term. Think of your retirement fund, instead of extra money for next month. To place your eggs in a good basket, pick stocks that will continue to create value for years. This way, even if the market drops, you have your eggs in a good basket and once the correction stops, the value of your investment can recuperate.
Know your paper losses. If you panic and you start selling at a loss, those losses will be converted to actual loss since you will lose value in your money. But if you relax, and let the drop go through, the market can correct itself, and the value of your stock will rise. As years pass by, that value can double, and even if the market drops again, your stock would be of higher value than you initially bought it at.
In hindsight, there was no reason for you to have panicked and have sold your stocks. If you panic and sell, then you would really be at a loss. Think of it as an opportunity to recuperate instead of a growing debt.
A drop in the market is a good time to buy. Think of it as trusting the system. At some point, the market will improve and by then, you would have an advantage for owning a stock which you can now sell at a positive value. If you are investing in the long term, you can keep that stock and then you would run the possibility of tripling the value of your money.
Next, this is also a good time to diversify your portfolio. Remember, you are doing this for the long haul. During a market drop, you can use this time to evaluate your current investment portfolio and see where you can and how you can diversify. You can see which kinds of investments are more protected during “crises” and then you can invest in those.
For example, you can check on how UITFs and mutual funds perform during these times. They may be slower in the rate of returns, but you can see how they perform when the market isn’t doing so well. This way, you can have more peace of mind should the market have to go through another correction.