The past week has been crazy for stocks as news of the omicron variant and disappointing job growth sends investment stocks down a rough road. Now the reality is that the stock market can be volatile outside of a pandemic. But given these strange times, investors really need to be prepared for continued volatility.
When I was new to investing, the volatility in the stock markets was enough to keep me awake at night. But these days, I really don’t care. Here’s why.
1. I know it’s probably just temporary
The stock market has seen its share of selloffs, corrections and other short-term ups and downs. But ultimately, he has a strong history of recovery.
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This is what helps me stay calm during times of volatility. Having been an investor for many years, I now know that these things are normal and that if I lost my temper every time the value of my portfolio goes down, I would submit to a lot of unnecessary anxiety.
2. I invest for the long term
If I intended to cash out my portfolio next month, I would be sweating because of this recent bout of volatility. But that’s not my plan.
I am far from ready to retire and have no plans to do anything to my portfolio in the short term other than maybe add something to it. And this knowledge helps me stay calm.
3. I don’t need to use my wallet in a pinch
I am what you might call too conservative on the emergency savings front. For most people, three to six months of living expenses is enough for a strong emergency fund. But I prefer to keep more than a year of living expenses in the bank. This is partly due to the fact that I am self-employed and therefore am not entitled to unemployment benefits or paid medical leave when needed. But also, having a stronger emergency fund helps me invest with more confidence.
In fact, one of the main reasons I don’t mind stock market declines is that I don’t rely on my portfolio as a source of short-term liquidity. Rather, I rely on the money I put in the bank. This money, to be clear, earns virtually no interest. But the upside is that it’s there for me when I need it and avoids scenarios where I might have to cash in on investments at a loss.
Stay the course
One of the most important things you can do as an investor when the stock market gets tough is to leave your portfolio alone – unless, of course, you add to it. In fact, declines in the stock markets are a great time to build your portfolio because you can buy stocks for a relatively low price.
But even if you don’t capitalize on this opportunity, you should do everything possible not to touch your investments when volatility ensues and stock prices plummet. This will help keep you on track with your long-term goals, while also helping you avoid unnecessary losses that only hurt you financially.
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