If you are an investor of any sort, then you will be aware that the stock market is a dynamic beast, and goes through cycles of making money and losing money. These cycles are known as bull and bear markets. When the market is doing well it’s a bull market, when stock prices are falling it’s referred to as a bear market.
The result? Far from celebrating, this long run of good fortune is starting to make people a little edgy. After all, a bull market can’t run forever, and what happens when the bear wakes up, hungry, and with a raging headache?
If you’re concerned about how to manage your stocks when the market starts to swing down, read on.
1. Don’t panic.
For many, their initial response to seeing that tumbling red line is a tight chest and perspiration. Panic is a natural response to a bad event over which we have no control. However, whilst it is a natural response, don’t let it dictate your behaviour and undo all your good work. It’s a well documented fact that panic causes distorted thinking. Therefore, take a moment to step back and think rationally before you take any action with your investments. Disinvesting as a knee-jerk reaction could have dire consequences.
Take a look at McDonald’s stock as case and point of this. Between 1999 and 2003 the stock value had fallen by 60%. That’s huge, and enough to make most retail investors jumpy. However, those that kept hold of their stock and didn't disinvest in a panic will be laughing now, as McDonald’s stock has since skyrocketed by 1,400%
2. Brush up on your history
Historically, the stock market has always swung up and down like an unsteady pendulum. Just because the market is falling today, it doesn’t mean that you will have "lost everything" in ten years time. Indeed, if you are investing for the future (in 20+ years time) then a crash in the market shouldn’t phase you.
This graph illustrates the performance of the FTSE100 since 1984. You can see that despite the dips, most recently in 2008 and 2016, that overall performance has moved in an upwards trend.
Take a single stock price as an example: if you had invested £100 in BAE Systems in 2009 - one of the original FTSE100 companies - today you would have £328.50, despite its ups and downs on the market over the years.
3. Buy? Sell?
As soon as you sell your stock at a loss, you are ensuring that you will not get your money back. You have cemented the loss. Whilst it's true that the market may continue to fall, and that you have no sure-fire way of knowing what will happen in the future, if you are investing for the long term - like retirement - you should look on this market dip as an opportunity. You could use it to buy stock that has momentarily tumbled in price but which you believe in.
4. Know your portfolio balance
When you register with Oval you’ll see that every investment product comes with a risk indicator. This is designed to help you understand how risky each particular product is in regards to the retention of your initial investment capital, and how much its value will fluctuate according to market movements.
This is done for a reason: so that you have a clearer idea about how to spread your investments across different indices in order to mitigate risk.
Take a look at your portfolio and ask yourself: Is your portfolio still in line with your goals?
Investing is a smart way to make sure that your money works for you. Build your confidence by starting with small investments of only €50 through the Oval investment marketplace and start your journey toward better financial health.
Your capital is at risk, and past performance may not be a reliable indicator of future results. Oval Money is not permitted to provide financial advice, and if you have any questions please consult an expert.