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What You Should Do When The Stock Market Drops

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by Gavin in Blog
April 24, 2020 0 comments

When the stock market drops, chances are your stomach drops with it! But this isn’t the time to be freaking out and running away from the market! This is the time to be making big moves and potentially coming out on the other side even wealthier!

Here’s the thing. As human beings, we can’t help but to be emotional creatures, and it’s natual to freak out when you watch your investments tank! But it’s important to remain composed and remember these 3 things that you should do when the Stock Market Drops.

What are your investment goals?

First thing you need to figure out is what are your investment goals. Unlike investing in Real Estate where it’s less volatile, if you’re in the stock market you’re likely in 1 of these three camps

  • Playing the stock market on a day to day basis for quick gains
  • Investing in high dividend stocks and earning passive income
  • Investing for the long term

Now, if you’re playing the stock market on a day to day basis, then you probably have your strategies in place, but if you’re in it for the long haul, then here are things you should always remember

  1. Don’t try and time the market

The first and most important thing to remember is, if you are investing for the long term, you can’t and shouldn’t time the market. Timing the market is very tricky, and it’s easy to lose a lot of money playing the stock market.

It’s easy to think that timing the market is simple and is a matter of buying and selling at the right time but that couldn’t be further from the truth. The stock market is extremely volatile, so unless you have a rock-solid strategy, invest and leave it be for the long haul.

And always remember, you only make a loss when you sell your stocks. So as long as you hold on to your shares, you haven’t lost money yet.

  1. Nowhere to go but up

The average time the market is a bear market only makes up 1 fifth of the average bull market. Using this statistic, it’s then important to remember that the market inevitably increases in value over time.

A bear market is temporary. Always has, and always will be. If you look at the overall history of the stock market, a bear market has always lasted a lot less than a bull market. We’ve all heard of historical bear markets that have made it in the history books, but looking back, have only made up a small portion of the overall history of the market.

Again, I’m going to reiterate. You only make a loss when you sell your stocks, so try not to sell your stocks and instead keep them for the long haul.

  1. Buy the dip

This is the hardest, but equally important thing to remember. Buy more! Instincts will kick in and scream for you not to run! But instead, you should take a step back and realize something.

The most millionaires are made during economic downturns.

This is because they realize that everything they buy is at a discount. Businesses and their shares are lower, but it’s almost always temporary. Use this opportunity to own more in company stock, and come out of the other side wealthier.

Final thoughts

Investing in the stock market comes with great rewards, and also greater risks. It’s important to have your goals and understand very clearly what your investment goals are. Ask yourself “have my goals changed?” If they haven’t, then your investments shouldn’t change either.

And lastly, always remember to take emotions out of trading the stock market. It’s a numbers game, and just like a calculator, should be played strategically. Use this time to diversify and accumulate shares at a discount.

Happy Trading, and thanks for reading.

Field Chari
DigestYourFinances

Field Chari is a software developer, real estate investor, and avid writer. He authors in-depth guides that teach the fundamentals of personal finance, investments, and early retirement. For more captivating content, check out his blog at DigestYourFinances.com

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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Options Trading 101 - The Ultimate Beginners Guide To Options

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