“Buy and hold” is the oldest advice on Wall Street—and for good reason. Over time, the stock market has given long-term investors the best shot at growing their money. Still, when stock prices are particularly volatile, there’s a natural instinct to just do something.
Good news. There are several somethings you can do that—unlike panic selling—won’t leave you feeling regret later.
1. Take stock of your finances, and rebalance if necessary.
It's never a bad time to sit down and check that you’re on track financially. But, critically, after big market movements (up or down) it’s important to reevaluate your portfolio's "balance." That means that if you intentionally split your money so that you had 50 percent in stocks and 50 percent in bonds, for example, you may need to make some adjustments—selling or buying shares—if stock prices have gone up or down a lot, so that you’re back to that 50:50 balance.
No matter what the stock market is doing, it’s generally a good idea to spread your money among several different types of stocks (U.S. and foreign, small and large cap) and bonds (corporate and government) so that when some parts of your portfolio are down, others may still be up.
2. Do a goals gut check.
Assuming your logic was sound at the time, whatever you decided you were investing for is still valid. If you’ve committed to investing $100 per month for five years, for example, that’s a great plan—and a temporary market drop shouldn’t change that. In fact, it may even be a good time to buy shares of stocks you like at lower prices.
On the other hand, if your goals have changed since you first set your intentions, it’s okay to make a new plan. Money you need in the very near future probably shouldn’t be tied up in potentially volatile investments like stocks. Emphasis on the word plan, though. Don’t make these decisions off the cuff—reacting to market moves is generally a losing game. Once you’ve made your plan, it’s usually wisest to just stick with it.
3. Turn off the news, and put down the phone.
Staying the course can be more challenging when our ears are full of TV doom, which reminds us what the market’s doing every second. A 2016 study found that we grab our phones thousands of times every day—and lately, it seems like we’re checking our portfolios that often, too. Stop that. A Fidelity analysis once found that customers with the best-performing accounts had actually forgotten about them altogether. So check your accounts once a day—if you must—but any more, and you’re just feeding the anxiety beast.
4. Think long term.
Remember, investing means playing the long game—putting a little money aside, deliberately, for many years, so your acorns become oak trees. Along the way, there will be bad days, bad months, even the occasional bad year. But investors who look past short-term fluctuations and stick with their plans have historically earned healthy returns over the long haul. As the old adage goes, it’s time in the market, not timing that market, that helps you build wealth.
5. Take a breath.
A deep breath. Don't obsess over every piece of economic news, every presidential press release or every market fluctuation. Maybe take a nap—at least a metaphorical one—and wake up in a few months when the dust has likely cleared.
Remember, market ups and downs are normal. But, historically, every market downturn has ended in an upturn.
January 2, 2019