One of the most intimidating things about investing your dollars in the stock market is when there is a sudden drop in the market. Though the investors usually see this as a usual thing, there are many among us who are not able to digest this loss in the value of stocks. It is then that we start pondering over whether or not we’ve done the right thing by investing in stocks.
As per recent reports, the year 2017 was incredibly painful as there were heavy gains during the initial phase of the year but later on the TSX plummeted by 14% in a year. The investors had become habituated in seeing bigger gains over the past few years and hence they had also started believing at the same time that things will just keep improving. During such times, it is vital to stay focused and calm lest you make bigger mistakes.
A drop in the stock market shouldn’t matter
It is seen that investors usually don’t forget anything bad that had happened in the past, even if that means during 2008. There was a huge stock market crash which left the investors in a state of haywire. The investors who thought of pulling out their money from the market missed the bigger gains which came in the following years. During the time when the stock markets are down, this is considered as a buying opportunity and this is when stocks are given on sale.
Investors tend to be emotional, although they’re asked not to be. Whenever the investments fall in terms of value, they sell off their stocks which in turn lead to a lowered price of almost everything. This means that your money can get you more shares since the price is lower. Such a big stock market drop like the one that happened in 2008 is rare and hence it is just better to stay aware of the course.
Investors fail to understand one thing, that such corrections are sometimes healthy and they usually occur because there seems to be some issue in some specific sector. During a time when the market is at its all time high level, the investments find it tough to grow and this often scares new investors away.
You have to stick down to your strategy
All of us have set our personal financial plan and though it doesn’t need to be detailed, yet we should know where our money has been invested. Is there any mixture of assets? Is there any risk tolerance? Investments can be broken into 2 sections, equities as they offer better returns and increased risk and fixed income assets which offer limited returns and safe investments. It is through a perfect combination of both that make up for allocation of assets.
Therefore when you’re wondering about whether or not you should worry about a stock market drop, take into account the above mentioned points. It is better not to fret about such stock market drops if you want to become a seasoned investor.