If you haven’t felt any apprehension about the stock market in the past year or so, then you likely haven’t been paying attention. Many investors feel they’ve been riding a roller coaster recently, but at the end of the day, it’s not a great idea to unbuckle your seat belt or give up just yet.
Let’s talk about the stock market’s volatility and why it shouldn’t panic you just yet.
How the Stock Market Has Been Acting
Ever heard of the VIX? That’s the Chicago Board of Exchange’s Volatility Index. It’s how we tend to measure how much the stock market is fluctuating.
Last month, the VIX rose as high as 24.59. That’s not excessively high, but that’s the highest the VIX has been in 2019. Therefore, some people have been a bit nervous about what’s to come in the latter half of the year.
Why You Shouldn’t Pull Your Investments Now
When the stock market becomes volatile and begins to fall, you might feel the temptation to sell all of your holdings and get out while you still can. It’s only natural – you want to remove yourself and your assets from a situation that could potentially have a terrible outcome.
However, various studies over time have indicated that people who pull their funds in times of volatility actually suffer more than those who ride the waves. The stock market is always ebbing and flowing, and if you want to see long-term benefits, it’s often better to buy and hold diversified portfolios for as long as possible.
In all honesty, it’s impossible to time the market just right. Why do you think there are so many people making different guesses and providing different investing advice at the same time? No one can say for certain what’s going to happen, and by trying to predict when you should sell your holdings during a downward slide, you set yourself up for failure.
How to Avoid Feeling Stressed About Stock Market Fluctuations
If you don’t want to spend hours every day monitoring your investments and worrying about what you should do with them, I have a few suggestions for your strategy.
Step one: don’t invest for short runs. When you buy a bond or stock, tell yourself that you’re in it for the long haul. Even when things start to get rocky, hold on and remind yourself that this is a long-term waiting game.
Step two: invest at different times rather than all at once. Because the stock market is always changing, you can take advantage of its fluctuation and invest at different times. This allows you to buy stocks at better prices and continuously diversify your portfolio.
Step three: speaking of diversification, don’t ever put all of your eggs in one basket when investing. Although market gains will almost always outpace standard savings rates, your chances of making a solid return on your investment are higher if you distribute your investments well.
Step four: stop checking your accounts every day. Ever heard the saying that a watched pot never boils? Checking on your funds every day only makes your more likely to have a knee-jerk reaction and sell when volatile times come around. Take a step back and let the market work its magic away from your watchful eyes.
Investing always carries some risk, whether you’re investing one dollar or a million. Accept that early on and you will save yourself a lot of pain and worry when the market becomes volatile.
Remind yourself that, overall, you’ll come out ahead if you don’t sell at the first time of trouble. Invest in a well-diversified portfolio, then plan to stay with that strategy for years to come. Bailing at the first sign of trouble certainly won’t make you rich, so don’t listen to everyone else who’s trying to time the market just right.