As you might or might not be aware of, the US Stock Market has been declining and may continue to do so. The market fell over 5% last week and looks to possibly continue the negative trajectory today.
This is the first 10% + pullback we have seen in a while. 10% is what experts call the correction, or when they feel stocks have gone up so much that they need to be corrected to allow new buyers to enter the market. Markets will always continue to rise over a long-term horizon; however, these pullbacks that occur do cause fear and worry in the eyes of many investors. I am here to tell you that you should not worry.
In one of my favorite books, Simple Wealth, Inevitable Wealth, by Nick Murray, Nick talks about how a declining market is one of the best things for your portfolio. If you buy an index fund on a constant basis, then putting the same amount of money into that fund will yield a purchase of more shares of that fund. Reversely, the more the fund increases the fewer shares you can purchase with the same amount.
My 3 tips for a downturn in the market:
- Continue buying stocks. Just because stocks are going down doesn’t mean you should get out of them. That is what everyone else is doing. Cover the purchase of a range of stocks through an all-stock index fund.
- If you have extra funds, then put them to work. If you have any spare cash lying around and your financial life is in good health, then use this as an opportunity to enter extra funds into a down market. Investing in an all-stock index fund means that the price of that fund is decreasing right now, so investing extra amounts of money at a decreased price means you can take advantage of that discount.
- DON’T PANIC. Don’t watch the news, don’t follow the markets, whatever it takes, don’t panic. That is what many do during a downturn, they sell. Can the market potentially drop an additional 10%? Absolutely, there is no way to tell how far it will drop, but if you sell when everyone else is you are giving in to the panic. Be a disciplined investor and continue buying while prices are falling.
Budget Smart, Invest Wise