Invest when the market is down
Conventional wisdom generally says that you should not panic when markets fall because it is in the nature of markets to go up or down, and if you are investing for the long term (as you probably should be), selling anytime the markets are down will only to enlarge your losses. Remember, it is about the time in the markets, not the timing of the markets. Often the fact that there is a lot of selling in the market does not mean that you need to sell either. But what about investing when the markets are down?
How to invest when the market is falling
Remember that markets go up and down, and this is a normal part of their life cycle. And when the markets are down, you can think of it as an opportunity to buy stocks at a discount. So, if you have the means and can afford the risks, you don’t necessarily have to think of investing as negative and bad when the markets go down.
However, this does not mean that you should put your financial life at risk. It is always important to consider the full economic picture. If you don’t have an emergency fund, it might be a good idea to set aside some money before you go on a bear market shopping spree. You’ll also want to make sure you start saving money for retirement before you consider investing in the markets for other wealth-building goals.
Of course, investing always has its risks. The market can always go down further. This could immediately earn you a negative return. There are many other types of risks that you must also consider as an investor, and these include risks associated with interest rates and inflation – especially when buying bonds.
Investing strategy when the market falls
In order to be sure that you are doing the right thing, you need to be sure that you are sticking to a sound strategy.
First, make sure your portfolio is diversified. If the markets are going down, there is no guarantee that it will stop. Look at your holdings and see if you are overexposed in one particular sector, asset type or geographic area. If your portfolio is full of stocks, for example, consider investing in some bonds, and vice versa.
Also keep in mind that you are investing for the long term and you should not try to time the markets. Although you may get stocks at a discount when the markets are down, assuming you choose to buy, it is best to continue investing at regular intervals. This strategy is called dollar cost averaging. It’s enough just to stick to the basics to be in good shape as you begin your recovery.
Disclaimer: The content of this article is for informational purposes only. The information provided should absolutely not be considered as investment advice or a recommendation. No warranty is made, express or implied, as to the accuracy of the information or data contained herein. Users of this article agree that Money Secrets does not accept responsibility for any of their investment decisions. Not every investment or trading strategy is suitable for anyone. See the risk warning statement.