When you’re investing in the stock market, and it’s going well, it’s easy to stay calm and collected (or get excited). But, as anyone who has dealt with stocks for a while can tell you, this is more the exception than the rule.
In reality, there are a lot of losses that happen in between the gains. Markets are known for their volatility. Most of the drops are short-term and you just have to wait them out.
How do you know when to cut your losses and run and when to ride out the dip? More importantly, how do you not stress out when your investments are on the line?
These three psychologically-backed pieces of expert advice will help you keep your own cool when the market is in a dip.
1. Look for the Big Picture
When little things happen, it’s easy to see them as a setback. In the long run, though, many times, these small annoyances end up being helpful.
Imagine getting stuck at a red light. You’re irritated because you’re already running late and this is one extra stressor on top of a rough morning. But when you drive through it, you see a cop that had pulled over the car in front of you, and you know you were speeding just as fast.
In the big picture, that red light saved you a lot of time and a big ticket.
It’s all about your perspective. In terms of the stock market, what does the big picture look like?
You can find this out by analyzing the long-term trends. Never has the stock market crashed and not recovered eventually.
How bad is the dip you’re in now? Is it as bad as the crash in 1987 when the broader market fell 23%? Is it as significant as the ‘73 -’74 crash in which the Dow Jones decreased 45%?
Then take a deep breath and look at the trends surrounding where you’re at right now and the big picture. Decide what your next step should be when you’re calm.
2. Come Up With a Backup Plan
The number rule of investing is to know that you’re essentially gambling with your money. Therefore, you should never invest more than you can afford to lose, and never expect to get a return. That way, when a dip happens, it doesn’t impact your plans significantly.
In the meantime, while you wait out, you should be working on a backup plan. Never put all your eggs in one basket. Diversify your portfolio, let your money work for you, and keep improving your daily life.
Furthering your education is one smart way to do this. As a physician, you’re already making a pretty good income. As Physicians Thrive points out, the next step on the ladder would be to look into adding on side responsibilities like that of a medical director.
The extra money you make with that role can go straight toward your investments and retirement. Knowing you have another income stream makes it easier to wait out any market dips.
3. Remember Your Investing Reasons
Any time you take out stock or invest in any addition to your portfolio, write down your reasoning. There’s a rationale behind why you chose that specific company to purchase stock from. You may need to refer back to this list when the market dips.
As part of your reasoning, include, while you are thinking clearly, any factors that would cause you to want to sell the stock. Then, if those attributes haven’t been met, walk away and go about your business.
You invested your money to let it work for you, not to get rich quick. This can take time. Remind yourself, through your own written words, that patience is necessary in order to get the best return on your investment.
Money volatility has been known to cause even the most level-headed of people to lose their cool occasionally. With highs and lows in the stock market happening all the time, the last thing you should do is watch it closely. Instead, pay attention to the big picture, have a back-up plan on hand, and go on with your day, dips or no dips!