I’ve been reading quite a number of articles on why those invested in the stock market shouldn’t panic with its recent decline. So let me play the devil’s advocate to those who are panicking and tell you why you should really panic.
1. If you’re currently panicking, chances are, you don’t know what you’ve gotten into. Before we invest, whether in business, stocks, or pooled funds, it is important that we study carefully the investment instrument we intend to get ourselves into. In case you’re invested in the stock market, being able to read charts or being knowledgeable in fundamental analysis would be important tools to learn. At the same time, understanding the volatility of the investment instrument you’ve chosen plus your risk tolerance would help calm your nerves in these situations.
2. If you’re panicking, chances are, you don’t know your goal or strategy. Why are you investing? Many people would answer this question with: “To make money.” Now my next question is, to make money for what or how much money you’d like to make? Would it be for your new gadget next year, your retirement, your kid’s education or your dream house? Having a specific investment goal would be helpful in times of market bloodbaths. Once that goal is set, then a strategy needs to be in place. Will you be trading in the stock market or just do cost averaging? Or would you just want fund managers do the investing for you? Is your goal long term or short term? What’s your loss threshold? When do you cut losses? Being able to clearly answer these questions BEFORE investing would help lessen your worry about your investment. Much like investing in a business, you’d probably have a vision first before taking the dive.
3. If you’re panicking, chances are, your financial adviser did not clearly explain #s 1 and 2. In case you decided to invest in pooled funds, it would be a good to ensure that your financial adviser can explain to you what you’re getting into. Some, not all, financial advisers would tell you to invest because the prices are low or because the market is on an uptrend. That, though shouldn’t be enough, as I would want a financial adviser who can explain to me what I’m getting into, what are the pros and cons of the different investment instruments and not just guaranteeing (there are no guarantees in investments by the way) me returns. Being able to update you as well on why the investments are losing money and what would be the next steps in your strategy are things your financial adviser should be helping you with.
So in case you’ve been mentally and emotionally stressed with the major drop in the market, consider the factors above. These factors help us lessen our worries – which for me is the ultimate meaning of financial freedom, a life without financial worries.