Recently, we saw a little volatility in the stock exchange. There were multiple days of three-digit drops (as well as some days that included three-digit gains) for the Dow Jones Industrial Average.
When stocks fall, it’s easy to panic and get bent out of shape. Nevertheless, that’s rarely the best method to keep peace of mind, or your finances. Rob Berger, writing for Forbes, provides a few advantages of falling markets:
- Get more shares with monthly contributions: When you have an automatic financial investment strategy, whether it’s for your IRA or with your company’s 401(k), your regular monthly contribution goes further when the marketplace is down.
- Better arises from reinvested dividends: Berger also explains that you wind up with better results from your reinvested dividends in a down market. When prices fall (however dividends do not), your payouts go much further.
- More value from share buybacks: As soon as once again, lower stock costs mean much better value for investors.
- Rebalance to sell high and buy low: Berger explains that you can sell mutual fund (which need to be higher in a falling stock market) and use the proceeds to purchase stock funds at a lower rate. It’s a great time to rebalance your portfolio when the market is struggling.
- Gain some experience: Can you manage your feelings? Are you opening to finding out something about managing your portfolio? Berger mentions that a down market provides you the opportunity to learn something about yourself and investing.
So, although you may be lured to get rid of all your stocks when things decrease, go back and hold your ground. Long term, riding out a market drop (as well as deal shopping) will likely be better for your portfolio.