“Help! I’m losing money!”
That might have been a concern of yours the past few weeks (and months) after looking at your investment portfolio. Scary, sure. But how worried do you really need to be about the stock market going down?
The stock market is down. What now?
The past couple of months the stock market has been rocky, to say the least. What is happening?
What is causing the dips?
Inflation
Well for starters, there’s inflation. The Covid 19 pandemic hit the world’s pause button, and now that everything is slowly going back to lockdown free times (touches wood) the world economy is acting up more than me in my angry teenage years.
Then there was a certain Russian president who decided to invade Ukraine, which stirred up the economy a whole lot more. Unstable times – be it a political or health crisis – always affect the way our system works.
Stock market cycles
The stock market has always been cyclic. That means that highs and lows happen back to back, continuously. This makes total sense if you think about it: the stock market is a collection of publicly listed stocks from companies in all kinds of industries. Every industry has ups and downs, and that will show in the stock price.
For example: during the pandemic e-commerce businesses like Amazon thrived, but airlines saw their income drop to almost zero.
The stock market has recovered every time and ended up higher than before. You could compare it to a tree: it loses its leaves every autumn, but gets them back every spring and in the meanwhile it has grown a little taller.
Are we in a bear market now?
Bull and bear markets have always been taking turns in the economy. It’s anything but easy to pinpoint the exact moment of transition, but it is safe to say that in May 2022 we are moving towards a bear market.
What is the difference between a bear and a bull market? Read it here.
So how can you avoid losing money in the stock market?
We are almost surely moving towards a bear market in 2022. Yikes! That means we should start worrying?
Not at all!
A bear market is not a problem if you know what you’re doing. The stock market is cyclic, remember? What goes up must come down, but that works in the opposite direction too.
Nobody can predict the future, but with these tips you can stop losing money in the stock market and regain your peace of mind as an investor.
Tip 1: Don’t panic sell
Always. Keep. Your. Cool.
Whenever your portfolio is going down the last thing you should do is panic, because that will fuel a reflex to sell and take your losses. A lot of investors sell during a dip and buy back during a peak. That means you’re selling cheap and buying high: bad idea. Rely on your knowledge instead of emotions and you will get a lot further.
Tip 2: Invest in education
As stated above you want to avoid panic selling at all cost. The best way to do that is to invest in knowledge and education. The more educated you are, the less likely you are to make emotional decisions because you will be able to put it all into perspective. Investing in knowledge is buying yourself peace of mind.
Get yourself the right tools to become a winner in the stock market. Get educated with online course ‘Newbie to investor’ now!
Tip 3: Check your emergency fund
Make sure that you don’t need to sell because you need the cash. This is why you always should have an emergency fund when you start investing. Whenever something unexpected happens you can tap into that buffer, and you leave your investments untouched.
Read all about emergency funds and when you can (and cannot) use them here.
Tip 4: Rebalance your portfolio if needed
The keyword in investing is always “diversification”. If you find out during a dip that your portfolio isn’t diversified enough, you can re-evaluate and rebalance when necessary. For example: you could add bonds for more stability if your nerves don’t cope well with volatility. If you want to diversify with little effort, your best option are without a doubt ETF’s.
The bottom line
At the end of the day it all boils down to this: sit it out. Stock market dips come and go, and they are not bad news if you know how to handle them. As long as you don’t the money short notice and you have thought your portfolio through, you will be just fine.
