How to Stomach the Bumps in the Market

Written by Lindsay Meredith on July 30, 2013

Some people get their thrills from watching scary movies, while others prefer excitement afforded by skydiving or similar extreme sports. This is all well and good, but if you really want to get your adrenaline pumping, nothing works better than watching money you’ve invested in the stocks swing up and down, shifting with the market moment by moment. It’s exhilarating and scary at the same time – definitely not for the faint of heart.

With all the highs and lows the stock market can go through in just a single day, many investors get carried away with their emotions, becoming so uneasy with seeing the value of their money fluctuate that they make rash decisions. While the impulse to pull money out of stocks when they fall and throw more cash at them when they rise is almost irresistible, it’s a very bad investment strategy.

So how do you keep your head on straight when the market’s going wild? Try these three tips in mind:

Carefully Research Your Investments Before You Commit To Them

Ok, so this one you can’t actually do while you’re in an existential investment crisis, but it’s a step you can take to prevent the crisis from occurring in the first place. If you put in the time and energy on the front end of your investment decisions - meaning you carefully research your options by checking into past performance, reading Morningstar ratings, etc. – it’s less likely that you’ll get freaked out if the stock price slips because you’ll be confident in your pick.

Bottom line: be sure that you don’t make any hasty stock purchases in the first place – you’ll be saving yourself from some tense moments down the road.

If The Market Starts To Plunge, Look Away

The stock market is an unpredictable beast that experiences ups and downs for reasons that seem totally unrelated to the macroeconomy. Political upheaval, a speech by an influential policy maker, bad weather – these are all factors that impact the way the market swings and are all beyond our control.

This is why it’s best to just look away when the market starts to plunge, even if it plunges quite a bit. Don’t check your brokerage account too frequently, don’t call your broker…perhaps don’t even listen to the news too closely. All of these usually innocuous habits will drive you nuts and might lead you to make an unreasonable investment decision. Remember, stocks will go back up. Distract yourself in the meantime!

Only Reassess Your Investment Choices After You’ve Held Onto Them For At Least Six Months

We’ve all heard of that the best approach to stock market investing is “buy and hold,” meaning buy stocks when they’re cheap and hold onto them through the ups and downs. This is usually a good long-term strategy, but it’s important to reassess your portfolio and weed out poorly performing stocks from time to time.

However, don’t dump a stock you’ve held for less than six months. Companies – even whole industries – go through rough patches from time to time, so 6-12 months is a fair timeframe to judge a stock’s quality. Anything less than this is shortsighted and could cause you to sell off a stock with a lot of potential.

Investing in the stock market can be nerve-wracking, so be sure to use these tips to keep from getting too anxious when things get dicey.

Posted Under: Savings
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About Lindsay Meredith

Lindsay is a high school teacher and personal finance blogger. She lives, works, and plays in the Washington, D.C. area.


Jul30

Some people get their thrills from watching scary movies, while others prefer excitement afforded by skydiving or similar extreme sports. This is all well and good, but if you really want to get your adrenaline pumping, nothing works better than watching money you’ve invested in the stocks swing up and down, shifting with the market moment by moment. It’s exhilarating and scary at the same time – definitely not for the faint of heart.

With all the highs and lows the stock market can go through in just a single day, many investors get carried away with their emotions, becoming so uneasy with seeing the value of their money fluctuate that they make rash decisions. While the impulse to pull money out of stocks when they fall and throw more cash at them when they rise is almost irresistible, it’s a very bad investment strategy.

So how do you keep your head on straight when the market’s going wild? Try these three tips in mind:

Carefully Research Your Investments Before You Commit To Them

Ok, so this one you can’t actually do while you’re in an existential investment crisis, but it’s a step you can take to prevent the crisis from occurring in the first place. If you put in the time and energy on the front end of your investment decisions - meaning you carefully research your options by checking into past performance, reading Morningstar ratings, etc. – it’s less likely that you’ll get freaked out if the stock price slips because you’ll be confident in your pick.

Bottom line: be sure that you don’t make any hasty stock purchases in the first place – you’ll be saving yourself from some tense moments down the road.

If The Market Starts To Plunge, Look Away

The stock market is an unpredictable beast that experiences ups and downs for reasons that seem totally unrelated to the macroeconomy. Political upheaval, a speech by an influential policy maker, bad weather – these are all factors that impact the way the market swings and are all beyond our control.

This is why it’s best to just look away when the market starts to plunge, even if it plunges quite a bit. Don’t check your brokerage account too frequently, don’t call your broker…perhaps don’t even listen to the news too closely. All of these usually innocuous habits will drive you nuts and might lead you to make an unreasonable investment decision. Remember, stocks will go back up. Distract yourself in the meantime!

Only Reassess Your Investment Choices After You’ve Held Onto Them For At Least Six Months

We’ve all heard of that the best approach to stock market investing is “buy and hold,” meaning buy stocks when they’re cheap and hold onto them through the ups and downs. This is usually a good long-term strategy, but it’s important to reassess your portfolio and weed out poorly performing stocks from time to time.

However, don’t dump a stock you’ve held for less than six months. Companies – even whole industries – go through rough patches from time to time, so 6-12 months is a fair timeframe to judge a stock’s quality. Anything less than this is shortsighted and could cause you to sell off a stock with a lot of potential.

Investing in the stock market can be nerve-wracking, so be sure to use these tips to keep from getting too anxious when things get dicey.

About Lindsay Meredith
Lindsay is a high school teacher and personal finance blogger. She lives, works, and plays in the Washington, D.C. area.