Keep a level head when it comes to investing in the stock market

Keep a level head when it comes to investing in the stock market
Eileen St. Pierre, The Everyday Financial Planner

rollercoaster rideEven for those of us who teach others about investing, it has been gut-wrenching to watch the recent turbulence in the stock market. Just when you think stocks can’t go down again, they do. I am not looking forward to reading my third quarter retirement statements. But I have not panicked – and that’s the last thing you should do too.

When you panic and sell all your stock, you realize any losses.

If you keep a level head and don’t sell, the losses are just on paper. They still hurt, I know. But stocks will bounce back. I lost even more money in the stock market when the housing market collapsed in 2008, but I recovered all that money and have since made a lot more.

If you get out of the stock market entirely, you will miss out on the upturn when stocks rebound.

After the housing market collapsed, many investors said they were leaving stocks for good. So when the stock market rebounded, they did not reap any of those returns. When these investors finally did return to the stock market, they were too late to the party. They ended up buying stocks at much higher prices. They bought high and sold low – this is the opposite of what you are supposed to do!

A decline in stock prices represents a great buying opportunity.

All the financial pundits are saying the stock market is due for a correction. Think of this as a great big sale on stocks. So now is a good time to invest more in stocks, not less. I guarantee you Warren Buffet would give you the same advice.

The bottom line is stick to your long-term financial plan. Every once in a while we need a stock market correction to test our discipline. Will you pass this test?

Visit my Basic Financial Management page for more information on investing.