Unless you have been living under a rock, you know the stock market has been volatile lately. As of this writing, we have dropped roughly 2,000 points in the Dow Jones, which translates into around a 10% drop. What makes things even crazier is that we will start the day with the stock market positive 300 points only to close 6 hours later at a negative 200 points or vice versa.
So how do you deal with this volatility? Below I offer up a few steps to help you stay on track and stay the course.
3 Tips To Handling The Stock Market
#1. Create A Plan
Do you create a shopping list when you go grocery shopping? If so, why do you do it? The reason is to help you only buy the things you need so that you don’t waste money. If you don’t shop with a grocery list, do you find yourself buying anything and everything you see? Odds are the answer is yes.
Grocery shopping with a list has a lot in common with investing. If you have a plan when investing, odds are you lose less money. This is because you don’t make decisions based on emotion. Instead, when the market gets crazy like it has been, you review your plan and it helps to keep your emotions in check. You remember why you are investing in the first place.
So, sit down and create an investing plan. Why are you investing? What are your goals? The more detailed you can get, the better the plan will help you at keeping things in perspective and not making emotional decisions.
#2. Understand Drops Happen. A Lot.
When the market drops by 10%, we call this a correction. How often does a correction occur? Would you be surprised to know it happens on average every 2 years? Really, every 2 years. We haven’t had one though for close to four years. In a sense we are overdue for one.
When you realize that these types of drops happen relatively frequently, you can calm down knowing it is most likely no big deal.
Think of flying in an airplane. If you never flew and had no clue what turbulence was, you would freak out when the plane would bounce around a bit. But for many people, the bumps aren’t a big deal because they know and understand turbulence. Sure it could get bad, but odds are it isn’t going to.
The same idea applies to investing. The more you understand how markets work, the less likely you will be to get scared when a drop happens.
#3. Change Your Perspective
I get that money is emotional for most people. But if you can just change your perspective, you can easily make it through any stock market downturn. How do you change your perspective?
When you go grocery shopping, you get excited when the items you are buying are on sale, as you get to save money. You would rather have this than show up and see that the price of milk jumped by $4. Look at investing the same way.
I get that over the long-term we want our money to grow into larger sums of money, but over the short-term, the pullbacks are great times to buy more shares at a discount. When the market was dropping, I was buying. I was more than happy to buy the ETFs I was buying for $50 to get them now at $43.
Why is this? Because I am confident in the long run the stock market will rebound and prices will rise higher. Look at any stock market chart and you will see this. So why not get excited when stocks are on sale?
If you have a plan when investing, change your outlook and understand that pullbacks are actually very common, and you can be a more relaxed investor. This will help you greatly in the long run because you will be less likely to act on emotion and we all know nothing good happens when we act solely on emotion.
Take the time to incorporate these tips into your investing routine and you will see greater success when investing.