fbpx
U

3 Things to Do When the Stock Market Drops

February 5, 2016

Stock Market Drop

The stock market started 2016 on shaky ground, with many indices getting close to (or below) 52-week lows. Regardless of whether you’re an active or passive investor, chances are the fluctuations of the market have affected your investment accounts in some capacity — and they’ve almost certainly impacted your emotions.

Many investors get unnecessarily panicked when the stock market drops, but you don’t need to worry if you maintain a smart and simple financial plan. When the stock market drops, don’t get irrational and let your emotions make financial decisions!

Here’s what you can do instead.

Review Your Comprehensive Plan

Everyone should have a long-term financial plan in place that acts as a roadmap to move you closer toward reaching your financial goals. This will help keep you on track, even when you’re a long way out from achieving what you want.

It’s not uncommon for the market to experience wild swings in both directions on a day-to-day basis. But considering that reaching financial success requires a long-term strategy, there’s no reason that market volatility should derail the plans for your financial future.

Periodically take a look at your financial plan to gauge where you are, and make adjustments as necessary. Keep in mind that even the most sound financial strategies will require tweaking, and in some cases, complete changes.

Just don’t let fear guide your decisions. Remember that a little turbulence in the market today probably won’t make a lick of difference in the long run, especially when you’re younger and investing for a time in the future that is 20, 30, or even 40 years away.

If you don’t have a comprehensive financial plan that you can review and remind yourself that you are prepared to weather any storms, it’s time to work with a financial pro to establish a plan.

Be Like Buffett

If you have some cash available, consider following Warren Buffett’s advice to be “greedy when others are fearful.”

At the core of Buffet’s message is the idea that you don’t get rich buying when the market is high or selling when the market begins to decline. You can, however, take advantage of lower priced assets when the stock market drops — a time when uncertainty resigns many investors to the sidelines.

A drop in the stock market is like items at a store being sold at a discounted rate: prices are lower, so buying in now means you have an opportunity to invest before prices inevitably rise again. A further glimpse into this theory reveals that when a stock’s price falls, an investor who purchases the stock can only lose the amount they contributed to the purchase, while the potential gains are limitless.

It is for this reason that many investors view a falling market as the ideal chance to pick up investments at bargain prices rather than a time to retreat into a more passive approach. This strategy is sometimes known as timing the market.

So while a stock market drop is an opportunity to be like Buffett, don’t get carried away! Keep in mind that trying to time the market is difficult even for experienced investors and is a strategy that should not be used without thought or guidance.

If You Have Questions, Ask

It’s hard to check your emotions when you are primarily focused on the ebb and flow of your net worth. Financial advisors exist to alleviate some of that anxiety and help keep your finances on a rational path.

An advisor can explain how to appropriately identify and take advantage of market opportunities while avoiding the dangers of market timing. A good financial planner should be one of your key allies in staying on track with your long-term financial strategy.

Lean on them to answer any questions about the market in general and rely on their expertise to help you craft a specific plan to minimize the anxiety related to your portfolio, regardless of what’s happening in the broader financial markets.

The key takeaway in all of this is to take action before a huge shift in the stock market, not after. Don’t let short-term situations cause you to panic and make emotional decisions that will negatively impact your long-term success.

If history is any indication, market fluctuations are inevitable — and often unpredictable. But with prior planning and the support of a knowledgeable financial planner, you won’t be swayed by the volatility of the market.

Instead, you’ll find this to be a prime opportunity to increase your investment portfolio and position yourself for future financial success.

Want more simple, smart financial advice? Then join our community!

You’ll get immediate access to 15 of our most recent podcast episodes filled with more financial straight-talk. As a bonus, when our shows release, they’ll be delivered straight to your inbox so you can get listen right away.

Connect

Subscribe

Most Recent Episodes

Financial Advisors React to Money Advice from ChatGPT

Will ChatGPT be your new financial advisor? In this react episode, we’ll break down some money advice from ChatGPT and compare it to our own thoughts and opinions. Enjoy the Show? Sign up for the Financial Order of Operation (FOO) Online Course! Sign up for our Know...

Financial Planning 101 (By Age) 2023 Edition

Throughout every decade, there are different areas of your financial life that come in and out of focus. In this episode, we'll discuss what you need to focus on by age, pitfalls to watch out for, and how to know you're doing it right. In this episode, you'll learn:...

Is the 2023 Housing Crash Around the Corner?

Housing prices skyrocketed after the pandemic to all-time highs, and mortgage rates have more than doubled since 2020. Homes are harder to purchase for more Americans, which means it’s more important than ever to make sure you are ready to buy before purchasing. In...

Watch This Before Rebalancing Your Investment Portfolio!

85% of Americans don’t rebalance their 401(k). Are they making a huge mistake? In this episode, we’ll discuss the “why” behind rebalancing, how to do it, and the data on whether or not rebalancing can increase your return. In this episode, you’ll learn: What...

Don’t Make This HUGE 401(k) Mistake!

Americans are making a HUGE mistake in their 401(k) that could cost them thousands by retirement. We’ll talk about why this is happening and how you can avoid making the same mistake in this Q&A episode! For more information on how to make the most out of every...

Alex Hormozi’s Top Money Advice! (Financial Advisors React)

In this episode, we react to Alex Hormozi's financial advice. Enjoy the Show? Sign up for the Financial Order of Operation (FOO) Online Course! Sign up for our Know Your Number Course! Check out our Net Worth Tool! Get FREE downloads full of financial advice from...

Everything You Need to Know About Finances in Your 20s

In this episode, we discuss everything you need to know about finances in your twenties. In this episode, you’ll learn: The top financial advice for your twenties How to start building wealth and the steps you should take Enjoy the Show? Sign up for the Financial...

The Most Valuable Asset in Building Wealth!

This episode will show you how to maximize the most valuable resource you have - starting right at this moment. What is it, you may ask? It’s TIME. If you give your money time to grow, you’ll be amazed at how much your dollars can become - it’s incredible! How wild is...