We all know that few things in life are predictable or guaranteed. While we can make educated guesses to help guide our efforts with a reasonable degree of certainty, there is still some element of risk. A good example of this is the stock market.
When investing in the stock market, there is always risk of loss. Losses are always a concern of investors, and sometimes they can be significant or happen in a very short period of time. Of course, loss is never “easy” for investors, but having a good investment plan in place can potentially help you limit the financial losses and avoid the emotional hardships some investors endure during market sell-offs.
So what do you do when the stock market declines? Let’s take a look.
Our previous situation
In October 2018, the S&P 500 declined 6.9 percent, which was its worst month since September 2011. This particular drop was fueled largely by the trade dispute between the United States and China, which represent the two largest economies in the world. We do not know what will be the end result of this dispute between the world’s two economic superpowers. Uncertainty is typically not viewed well by the markets, and it is possible there could be additional losses if trade disputes are not resolved in the short term.
In times like these, many people offer advice and predictions through TV, websites, and print media. The range of opinions and predictions can be so different that it can overwhelm some investors. It is important to remember that all those offering advice through media platforms do not know your particular situation. At times, it is in their economic interest to spark skepticism, and they often do so by making attention grabbing claims that may or may not be good advice.
What can you do when the stock market declines?
When making decisions about your portfolio during market declines, always ask yourself a question: Does this make sense for my current financial plan? A good plan should incorporate the following:
- Your income needs,
- Sources of income, and
- Investments that match your tolerance for risk
- Do I have a plan to keep up with inflation
Those who don’t have a plan often times make decisions based on fear and emotion. Several investors made emotion based decisions during the stock decline in 2008 and lost out on significant gains in the market during future years. This is why a good financial plan is so essential for investors. For some investors, the recent market decline may be a signal to make adjustments to their portfolio. However, it is essential that any decision is based on the logical needs of your overall financial situation.
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