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What You MUST Know/Do When Stock Markets Behave Badly

October 22, 2014

Scary headlines are an investor’s worst nightmare.
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Here were 4 days of them last week from the front page of the Globe and Mail’s Report On Business section;

Oct 15.-  Forty-Day Freefall
Oct 16-  What Fear Looks Like
Oct 17-  Markets Rebound On QE Hopes
Oct 18-  Global Economy Breakdown

With the exception of Oct 17th’s more positive statement, what does a seemingly rational investor do when he/she reads these?

Bad news creates fear and our emotions run high. These uncomfortable feelings cause people to act quickly in ways that are bad for their long term investing success. Especially when Joe and Emily (your smartest work buddy, and brainy friend) are cutting their losses and selling their stocks.

In fairness to the Globe, which is a great newspaper that I read daily, there was more balanced and useful content inside. Unfortunately, many people don’t get beyond the front page and the shock value stays imprinted on their brain.

Investors must fear themselves more than falling stock markets.

Here’s what I do (and tell my clients/friends to do) when markets and financial news behave badly…

1) Tune out the short term noise (if it’s making me crazy)
2) Stop looking at the declining value of my investments (if they’re upsetting me)
3) Remind myself how important it is to stay invested for the long term (research proves this)
4) Ignore the cocktail party chatter about exiting the market (I know it’s hard to do)
5) Consider purchasing more stocks while they’re “on sale”( if I have excess cash and it’s consistent with my long term strategy)

Full disclosure… If you think I have very few stocks, you are wrong. My own portfolio is fairly large and heavily weighted (>70%) towards stocks, especially those that pay dividends. So, when the market declines, I unfortunately notice a big dollar value drop.

Some of you will think I’m mad, crazy or both. How irrational and irresponsible of me to tell you to do nothing? Shouldn’t good financial advisors see big declines coming? Isn’t that what you pay your advisor for?

The brightest minds in the world can’t predict the stock market’s twists and turns on the way to long term growth. Unlike a burning building where immediate action is required, a falling stock market will eventually correct itself on its own.

When investors have a strong plan/strategy in place, the “do nothing” approach really works! It did for me during the 2008-09 financial crisis. So, please relax, STOP WORRYING and don’t sell your stocks in a falling market. Don’t you have more important things to do?!

Related posts:

Lessons Learned About Investing From A Business News Junkie

Investing- 4 Tips To See The Forest Through The Trees

Proud founder of this blog Let’s Talk About Money, Patricia Gass, CPA, CA, provides personal finance coaching and education to improve your money skills

Image: Dan Kitwood/Getty Images

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