Summary
When it comes to investing, market volatility is to be expected despite common perceptions money can be, and is still made in the share market despite its volatile nature.
Content
When it comes to investing, market volatility is to be expected despite common perceptions money can be, and is still made in the share market despite its volatile nature.
Often in a volatile market people panic and start to sell down shares. Selling shares after a sudden and dramatic drop in the market is often the worst thing you can do. Selling down shares after a fall in the market means you are securing these losses. If you instead stay calm and hold onto these shares over time the market will generally bounce back and you may not lose any money at all. The key to surviving in a volatile market is to be patient and to not make any rash decisions as a reaction to a sudden decline.
It’s all about time in the market, not timing the market. It’s hard to pick the highest or lowest point in the market and even the most successful economists get it wrong. Instead, you are better to invest small portions of money on a regular basis to average out your purchase price. If you can avoid investing all of your money at once it removes the risk that you will invest a large portion of money at the top of the market. It is also important to invest in good quality, blue chip companies and invest for the long term. A ‘buy and hold’ strategy where you invest for the long term removes the temptation to sell out at the wrong time and potentially cost yourself a lot of money.
Over time there have been several market crashes and world events that have had a huge impact on the share market. The key is to remember that after each one of these crashes the market has recovered.
Market crashes are not a thing of the past, they will continue in the future. Nobody can predict exactly when the next one will be, or how bad it will be. The important thing to remember is to not make impulsive decisions in reaction to market volatility and stick in there for the long run. Invest in good quality companies, invest gradually and adopt a ‘buy and hold’ strategy. You haven’t lost money in the stock market until you sell your shares and crystallise that loss. So when the market is volatile don’t bail out, but instead hang in there for the ride.
Author: Kelsea Pipe