Of Dollars And Data: How to Not Panic
Investors feel in control of their portfolios – at least when markets are on the rise. But when markets go through one of their periodic drops, panic can often reign.
To succeed in avoiding big losses and to get set up for better profits in the future, controlling emotions during a stock downturn is key. In today’s market downturn, the key to succeed is to keep calm. And focus on the facts.
One thing investors may have forgotten in recent years is that stocks don’t “always go up.” Rather they have down years. And even down periods within a year.
On average, investors should expect a 10 percent correction every other year. And a pullback of as much as 30 percent every 4-5 years. While many remember a steady bull market starting in 2009, there have now been 5 episodes of at least a 10 percent drop.
This current drop is bigger than other recent drops have been. Given the combination of a slow economy and high inflation, however, this may not be too surprising. And following last year’s massive market rally, valuations are coming back to their historical range.
For most investors, staying the course and focusing on the long-term will work out over time. Those who have been trading excessively have likely been burned enough to avoid doing so for some time.
But understanding the market averages, and market history, will make it easier to avoid panicking during a downturn.