The stock market started off the year calm and stable, but shortly before the first month of the year is ending, we are witnessing negative changes. How should you react to this news, what actions need to be taken, and what must be avoided is difficult to comprehend. In addition, the world in which we live today is drowning us with tons of information every minute. That information has the power to turn things around each time a new headline gets posted online. The reality is the following – when the market is unsteady, every action or inaction can lead to serious consequences.
Let’s take a look at the basic steps a newbie in investing needs to follow when the market becomes volatile.
1. Don’t panic
Many are aware of the major difference between a demo and a live account – losing your real money. Here is why, whenever there is a market movement, the first thing you should do is to remain calm. As an experienced investor or novice online trader, you should know that the stock market can be volatile and filled with ups and downs. By staying calm, you will be able to make rational decisions that will help minimize your losses. However, as long as you diversify your investments, you shouldn’t worry too much about fluctuations in one particular market or product group.
Bear in mind that investment decisions based on fear will most likely cause even bigger problems, if not now, then later on.
2. Calculate your losses
It is important to have an idea about how your investments are moving and more importantly – how each market movement will affect them. Here is why your next step should be calculating and understanding your losses. This is perhaps the best time to review your asset allocation and then make appropriate adjustments to make sure that next time your loss will be minimized. By knowing how much went down with the fall, you will be able to determine how much you should invest in the stock market and how much in other opportunities.
3. Think twice
The media influences investors, and in turn, the market. Different media outlets have the power to create trends just because they promote information about the stocks traded on the stock market. That information might not be truthful. If you read a piece of false news regarding the current market trends, you might end up acting on impulse, which, in turn, can prompt you to make an irrational investment decision. You want to make sure that the information you obtained is from a reliable source, maybe even multiple, so you can cross-reference it. If you cannot do that, then we suggest that you do not react.
4. Reach out for a professional opinion
Trading on the stock market requires not only patience but also knowledge and experience. If you are uncertain about what to do during a stock market drop, then reaching out for a professional opinion from a financial advisor can be of great help. Doing so also allows you to rebalance your portfolio if necessary. Moreover, a professional advisor can help you assess your current finances so you can properly distribute your investments while minimizing the risks.
5. Look at the bigger picture
The stock market isn’t a short-term investment, nor it is a get-rich-quick scheme. It demands patience and by nature, it is filled with lots of ups and downs. Therefore, when you first enter the stock market and buy a stock, give it enough time to mature and increase in value. Try to align your investment with your long-term goals and aspirations and don't make the mistake of doubling your losses because you have embarked on impulsive actions, triggered by a market fall.