When the stock market takes a nose dive and you see losses in your portfolio it can make your stomach turn. Investors should naturally be concerned with investments that have decreased in value. Although you may want to log into your brokerage account and move entirely to cash, or other conservative investment, you must first take a deep breath. It may seem cliché when you hear someone say remain calm when the market is in turmoil, but staying calm in these situations can help your financial future. Here are some reasons that remaining calm can benefit your personal health and portfolio health at the same time.
Companies that have strong financials and excellent management can go down in value when the major indexes overall are going down. A day of trading in the red for the S&P 500, Dow, NASDAQ, etc. can also mean that your top stock(s) can be in negative territory as well. If a company continues to generate profits, future earnings look promising, and customers remain happy, then the stock will be worthwhile for investing.
Moving out of stocks can be costly with transaction fees and potential taxes from the sale of securities. However, potential taxes from selling a stock should never be the sole reason for keeping the investment.
Investors that get back in the market after a period of decline often miss most of the upside. Numerous articles have been written about how people often wait too long before they feel it is “safe” to invest in stocks, ETFs, mutual funds, etc. again.
Having an investment plan in place ahead of time will help keep you calm. It is much easier to see the investment value in the red when you know that the investment still falls in line with your plan.
Checking your investment portfolio every five seconds is not good and will distract you from other important tasks. If you are constantly viewing your portfolio you may be tempted to make a transaction that does not fall in line with your investment strategy.
If you take a moment to clear your head and have a brief period of relaxation you can ask yourself if doing a transaction makes financial sense both now and for the future.
These are just a few benefits that remaining calm will have on your personal/portfolio health. In the world of investing it is always good to have a trusted person with whom you can have important discussions regarding your financial decisions. Whether you team up with a financial advisor or not having someone to discuss investment strategies with can keep you from making a financial decision based on fear.