Yes, I know – this is not a language I usually use. And to be quite honest, it is not my language but used by one of my clients.
And I don’t blame them. My own portfolio moves wildly from day to day. When you are young and fit and have a lifetime ahead of you it’s not so bad. Me? Well, I have an unpredictable ticker that likes to stop every now and then and to be honest that’s a bit of a problem.
Add in the fact that I have expensive car costs and my wife has a handbag and shoe addiction that Victoria Beckham would be jealous of means it is a slightly bigger problem.
My clients are no different. One day they make thousands and the next day they are down tens of thousands on the market. It does not make sense and the feeling naturally is to get out to avoid the stress.
Markets around the world are down 20% and this for some reason gets all share markets analysts very excited, and all they can talk about is doom and gloom and how we will all be living on the street very soon. Add this to interest rate rises and the cost of living increases and these guys are having the time of their lives running around with their arms in the air revelling in the knowledge that investors will be living off cabbage soup for the rest of their days.
Investors get scared into thinking they need to sell and get out. But jumping when the market is down could be an expensive mistake to make.
Here’s the thing. 20% drops will happen several times during an investor’s lifetime and although I have seen several people cry from the losses I have seen none that have ended up on the street. Not yet anyway.
Here are several mistakes many investors make when the stock market drops.
Mistake 1 – Panic and sell out!
I get that volatility is scary. Getting out of the market when it is down may mean:
- Selling out at a loss. Never a good result.
- Missing out on the chance to participate in future market rebounds and the market usually rebounds if you have a diversified portfolio.
- Missing out on the opportunity to buy additional shares at a reduced price. When the market falls it usually means good companies with no reason to fall in price will fall too. There may be opportunities to grab them at a low price.
Mistake 2 – Only Invest What You Can
You should only put money on the market you can do without.
That’s because the market thinks and operates short term, but your investment strategy should be long term.
You don’t want to be forced to sell out of your investments to fund your daily living expenses.
When I invest in the market I usually assume it is money I will never need again – which means I need a supply of funds on the side to feed the car collection and ensure enough shoes can be bought without having to sell our share portfolio.
Mistake 3 – Stop listening to those Stupid Pundits and Analysts
Okay – listen to some of them – namely your financial planner and advisors. Ignore the TV ones who are running around like headless chickens screaming about how the world is about to end.
They are there to drive viewer ratings and drama. Scary faces and people running around like headless chickens is good for ratings. Trust me they are not doing it for your financial health.
Mistake 4 – Constantly checking your balances, losses or profits
Remaining up to date on your financial status is an important part of being a responsible investor. However, constantly checking in on your accounts through periods of market volatility will only lead you to heart failure – especially if you have a few cars to maintain or need to feed a handbag addiction.
If you have a long-term investment strategy in place, you don’t need to check your accounts all the time. If your intention is not to sell now who cares what the price is now. The only price that is relevant is the one when you retire or decide to sell.