We have seen some wild swings that we are not used to. For the past ten years it’s been a bull market, everything has just been going up, so bumps like this, big bumps, are really scary for some people.
What Should Investors Do:
Not Panic
Keep it all in Perspective
Check the Allocation in your Portfolio
Don't panic, stay the course. It’s really temping to have these emotional reaction and say ‘I have to make changes (to my portfolio)’, but typically, and studies have shown that it's the worse time to do that. Making these short term emotional changes can negatively impact the long term returns you have.
This isn’t the first time a pandemic has hit us… markets have reacted, but in the long run market do tend to recover and increase. If you find yourself panicking, it just may be an indication that you may not have the right portfolio. Maybe you think you are a little more aggressive than you really are, so when you see these things maybe it's a good time to say, ‘Is my portfolio aligned with my tolerance for risk’.
What should you do if you experienced a loss?
Nothing! If you have experienced large losses and you make an inherent change in the profile of your portfolio, your probably just going to end up locking in those losses and you might not regain the ground that you lost.
CNBC further explains that, “If the market keeps sinking, remember that, for many investors, this is okay: You are investing your money for the long term, not for this week or even this year. Unless you’re near retirement, you will likely have time to recover. Future gains are never guaranteed” (Adamczyk, 2020).
Disclosure: I mention at the end of my interview that markets will recover eventually, but I want to take the opportunity to remind ourselves that no one, not even me, can predict the market, which is part of why this is so unsettling for many. But I believe that markets can and will recover.
Citations: Adamczyk, A. (2020, February 26). When the market tanks, ask yourself: What would Warren Buffett do? Retrieved from https://www.cnbc.com/2020/02/25/when-the-market-tanks-ask-yourself-what-would-warren-buffett-do.html
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