Buy low, sell high: That’s the adage that we all know well.
However, when the financial markets are down, many of us forget this sage advice and instead react with the kind of frantic urgency that you might see during the early days of a zombie apocalypse.
Being rash and exiting the stock market or selling shares in response to a drop is not the best way to react. Rather than panic, wise investors understand that ups and downs are a part of the process. In fact, the wisest investors use dips in the stock market to snatch up desirable shares at much more attractive prices.
Consider that the performance of the S&P 500 has increased 337.28% since March 9, 2009 (the worst day of stock market performance during the Great Recession).
That mean's that if you had put $100 dollars into the stock market on March 9, 2009 and left it there, you would have $437.28 today.
When the market is down, don’t panic.
Say it with me, “I will not panic.” Instead, ride the wave – you might find the swells to be among the most amazing of your life.
The most important things to remember are to stick to your long-term plan, take time to understand why the markets are down, and if you’re going to make any moves make them with your head and not your heart.
To avoid panic, I think it’s a good rule of thumb to do the following 4 things:
Breathe. Don’t let emotions about the stock market performance cloud your judgement.
Plan for the unknown. Building the unexpected into your financial plan is the smartest investment strategy. Market movements are part of the process, that’s why you invest in the first place!
Play the long-game. You should develop a strategic investment plan that considers what your investment objectives are and where you want your investments to be in five, 10, or 20 years.
Make adjustments when necessary. When your life goals or plans change — or your tolerance for risk changes — take an honest look at your strategy and adjust it accordingly.