The U.S. stock markets have been experiencing some bumpy rides recently, reacting to news of trade issues with China and fears of an economic slowdown. If you are worried about your investment accounts, you’re not alone. But during stock market volatility, it’s important to keep a cool head to avoid a financial faux pas.
Here’s what I recommend doing to keep things in perspective:
1. Stay Calm
This is not the first time the market has taken a tumble, and it won’t be the last. Declines in the Dow Jones Industrial Average are fairly regular events. Drops of 10% or more happen about once a year on average.
2. Play Dead
There’s an old saying that the best thing to do when you meet a bear market is the same as if you were to meet a bear in the woods: play dead. While it's easier said than done, successful long-term investors know that it’s important to stay calm during a market correction. I would recommend not making changes in your long-term financial plan due to short‐term market fluctuations.
3. Remember that Your Portfolio is Diversified
Volatility and market declines are stressful. But keep in mind that while the stock market may be down significantly, your portfolio is made up of stocks, bonds, and other assets that are designed to work together to decrease overall losses in times like these.
4. Does the Left Hand Know What the Right Hand is Doing?
Now is a good time to take a look at all of your investment accounts — including your 401(k) — to make sure they are diversified well. If you have not reviewed your other investment accounts, give us a call. We'll take a look and offer recommendations to minimize potential losses.
5. Turn Off Your Phone (or TV)
In today’s digital world, we have 24/7 access to countless numbers of news media outlets. Because sensationalism sells, most of what you hear will be dramatic. Keep this in mind, and turn off the drama.
Remember these words of advice, attributed to Theodore Roosevelt:
“In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.”