TEMPLE, Texas — The “Great Recession” scared off a lot of people from investing, but if you just stayed the course, a couple of years down the road with the recession in the rear-view mirror, investors saw incredible returns.
So, in this Money Talks, we talk about common mistakes that people make in a market downturn. If you are like us, people who like to really stay on top of your investments, you'd better understand that on a daily basis, there will be ups and downs!
"There isn't a reason to watch every move of the market and your investments, especially if doing so stresses you out and causes you to make changes to your portfolio based on emotions," Certified Financial Planner Neil Vannoy told 6 News. "If you follow a solid investment strategy and have a properly diversified portfolio, then you can tune out when the market gets volatile and go do something you enjoy.
Remember, especially if you are young, investing is not a sprint, it's a marathon for decades of your life!
"The first reaction of many investors to a downturn is to sell their investments and stay in cash until the market 'gets back to normal,'" Vannoy said. "The problem with this strategy is that volatility and uncertainty is normal for the stock market. By moving to cash you turn paper losses into real losses and then have to risk getting back in too late and missing gains or getting back in too early and suffering more losses."
Dollar-cost averaging, investing as you get paid, allows you to actually be buying dips or corrections in the market. If investment prices drop, you are actually buying at on-sale prices.
"Even if they avoid the mistake of moving their current investments to cash, many investors stop making additional investments when the market drops," Vannoy told 6 News. "Anyone that's not finished building their nest egg should love market downturns and the opportunity to invest in solid companies at discount prices. If you were in the market to buy a home and the one you wanted suddenly had its price cut by 20%, would you wait to buy it until the price went back up? No, you'd buy it and tell everyone what a great deal you got!"
Remember one thing, the market doesn't stay frozen. It's always in flux and will always be going up or down.
"Even though the current downturn is a buying opportunity for long-term investments, it still can go lower before it rebounds," Vannoy said. "So, avoid using leveraged investments or margin accounts to try to make quick profits from the volatility. Think long-term when adding to your portfolio."
In 2023, 61% of adults in the United States were invested in the stock market. This figure has remained steady over the last few years and is still below the levels before the great recession, when it peaked in 2007 at 65%.
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