These are turbulent times for the stock market. The market has officially entered bear market territory, The Dow Jones is dropping over 1,000 points on any given day. The Coronavirus Collapse caused the Dow Jones Industrial Average to decline over 3,000 points just two days ago. Investors are seeing their 401(k) balances decimated and are worried if they will lose everything. So, what should an intelligent investor do these times of market upheaval?
Eliminate The Noise Causing You To Panic
Decrease the amount of negative market news that you are consuming. A study by Psychology today showed that consistently viewing negative news leads to greater degrees of worry, sadness, and depression. News has an effect on the emotional state of the viewer. You need to know what’s happening in the market but you also need to reduce your news consumption if it has an effect on your investment decisions. Also, don’t listen to friends and family telling you to liquidate your entire market position or you will go broke. This is horrible advice and will keep you from reaping gains when the market rebounds.
Do Not Follow Your Feelings
One surefire way to lock in losses is by following your emotions. Following their feelings causes most investors to buy high and sell low. They buy stocks when they are skyrocketing and the market is close to all time highs and they sell stocks when the market is dropping. You cannot allow fear or euphoria to shape your investment decisions. The color red invokes the sentiment to sell whereas seeing the color green moves investors to purchase. Resist the temptation. The best investors go against the grain. They buy stocks when everyone is selling and sell stocks when everyone is buying. Become a contrarian investor and buy now while others are selling.
Intelligent Investors Stay The Course
If you have a solid investment strategy, stick to it. If you thought Bank of America was a solid company at $35 a share then why wouldn’t you buy it at $20 a share? Investors have a tendency to think when a stock price drops that it’s a bad stock but when the price rises that it’s a good stock. Stick to the fundamentals. Buying during market selloffs allows you to reduce your cost basis while accumulating additional shares. You are able to increase your investment positions at a lower cost. That’s a win-win. (Remember it’s free to invest).
Diversify Your Portfolio
Every portfolio needs to include fixed income assets. The older an investor gets, the more fixed income assets a portfolio should contain. Corporate bonds, treasury bonds, bond exchange traded funds, and certificates of deposit are examples of fixed income assets. They provide investors with safety and protection when riskier assets like stocks are crashing. An intelligent investor adds some fixed income assets to your portfolio.
Purchase Quality Companies
Now is the time to buy quality stocks that are selling on sale. This is a chance for investors to purchase shares of Nike, Microsoft, Apple, Google, and Proctor and Gamble at lower trading levels. Long term investors can start building a position in quality names that are selling at a discount. They will be rewarded when their share prices rebound in the years to come.
Remember that the next group of millionaires is forming right now. Investors who have the resolve and fortitude to invest in times of uncertainty will be rewarded in years to come. That is an intelligent investor.