The coronavirus pandemic has made the stock market incredibly volatile. We have seen big falls followed by big gains, sometimes with limited reasons for both.
That scares an investor. Watching your portfolio fall amid economic uncertainty can make you wonder if you want to be in the market. That can lead to bad financial movements due to panic.
It is important to fight fear. Remember that markets can go down quickly, but they have always recovered. If you are a long-term investor, it is important to avoid making these common mistakes.
The market may collapse again. Don’t panic. Image source: Getty Images.
Don’t sell out of fear
In today’s market, it is impossible to know when another market crash will come. Recovery has been based on the idea that the pandemic has become a minor problem.
The reality is that the coronavirus has not passed, it may be getting worse as the economy reopens. There could be new closings or an extended period during which stores and restaurants remain open but with significant restrictions.
That could cause the market to crash, and it’s tempting to sell your shares and sit still. The reality is that you should not sell due to relatively short-term market conditions. You must sell only when something changes about your investment thesis to own the shares in the first place.
Perhaps a company you own does something you don’t like during the pandemic. Perhaps he fired people cruelly or mistreated clients.
In that case, sell those shares and reinvest your capital in a company that matches your values. Without that kind of situation, keep your stocks and look for investment opportunities.
Don’t wait to buy a fund
If the market fails, in theory you can buy good stocks at a discount. That idea makes investors look forward to a collapse that may never come and leaves them on the sidelines as the stocks they want to buy increase.
No one knows when an accident will come or where the bottom is. Don’t be afraid to buy good companies at all-time highs. Play the long game and buy business stocks you believe in.
It is almost impossible to buy at the perfect price. You may think you are seeing a bottom only for the market to crash. Or you may think that another downturn is going to occur and then watch the market recover.
Don’t try to time the market. It probably won’t work, and trying to do so can lead to missed opportunities.
Try to turn off the noise
With the world of entertainment and sports largely on hold, the stock market has received undue attention. There is a lot of noise, and that can create fear, which can lead to bad decisions.
Try not to follow your portfolio day by day. It does not invest today or tomorrow, but in the long term. It can be easy to panic when so many voices scream pessimism.
Remember, there is no new normal. There is a new one right now. Markets will fall, they may even collapse, but in the long run, history shows us that good companies will eventually recover.
