The Stock Market Is Down – Should I Panic?
If you have been paying attention to world markets at all in the past two to three months, then you know that things are not all peaches and cream. US and World Markets are all down quite a bit in recent months. Is now the time to sell your stocks and get out? Should you panic?
Are You Scared Right Now?
The S&P-500 Index is currently down about 11% from its 2015 high. Other global market are down more than 20% and are technically in a “bear market.” For the new investor that hasn’t experienced a bear market before, things are starting to get a little scary.
If you are nervous about your current stock market portfolio, that’s a good sign that you are taking on more risk that you are ready for with your investments. If you are new to investing, you cannot fully appreciate how much risk you are really willing to take. Many folks new to investing will over-estimate how much risk they are really willing to take. When we see large stock market corrections, they buckle under the stress and end up panic selling at the worst possible time! I wrote an earlier article entitled Know Your Risk Tolerance – I suggest you check this out if you are feeling a bit scared about the current stock market.
How Much Risk Should You Be Taking?
Some people liken the stock market to gambling, similar to games of chance that you might find at this website. Others view stock market investing as an essential activity to engage in to build long-term wealth for yourself and your family. While the stock market investing does entail risk, this is largely controllable with how you allocate your investing dollar. I fall into the second camp and highly recommend stock market investing for long-term wealth building.
Many beginning investors find that taking a “small” to “medium” amount of risk is right for them as they are getting started on their investing journey. Once they get their feet wet with investing (likely through market index funds), and experience a downturn or two successfully, they will be ready to consider taking on more risk. If you are new to stock market investing, I suggest you checkout my free Ebook – Stock Market Investing for Newbies. Section 5.5 of my stock market investing Ebook talks all about asset allocation basics and helps you to decide what type of asset allocation will be right for you once you have a feel for how much risk you should be taking.
The Stock Market Is Down – Should I Panic? – Final Thoughts
A bit of anxiety when the stock market dips is completely normal. If you are distracted during the day or having problems sleeping at night thinking of all the money you are potentially losing, then you are invested in something that is just too risky for you! You need to change your asset allocation! If you think this is you, then please take extra time to better understand the ins and outs of investing and asset allocation so that you prevent yourself from making a big mistake like I did!
Now that I have learned much more about stock market investing, have learned my own risk tolerance, and have made a few investing mistakes along the way, I view this downturn in a new light. I think the recent downturn as a very good thing. Friends and co-workers are trying to trade this downturn and predict just how low things will go. That’s a fools errand and very much like gambling.
On the other hand, I can keep my investments on cruise control and continue to dollar-cost-average my monthly investment dollars. This will allow me to purchase stocks at a “discount” compared to where they were valued just a few months ago. I can feel good about my investments because of my asset allocation – I have some cash, real estate, and bonds in my portfolio to help cushion against a drop in the stock market. I am also reassured in that I plan to leave my stocks invested for a VERY long time before I will need to sell them for living expenses. If we do see further drops, I have a long time for stock market prices to come back up.
A little education goes a long way when it comes to stock market investing… Should you panic now that the stock market is down? NO!! I hope this short article has convinced you that if you are panicked because of the downturn in the stockmarket, then you need to make some investing changes and educate yourself more!
