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5 things to do when the stock market slides
The stock market has seen some volatility recently and several down days. It's not time to panic. But there are things you can do to protect your investments.
Most investors would love to see the market go up every day. Unfortunately, there will be days — sometimes weeks and even months — when the market keeps going lower.
Investors have gotten a taste of this since the start of September, with a couple of down weeks for the market stirring talk of a significant pullback. It’s uncomfortable. But keep in mind, it’s not unusual.
A pullback of up to 10% is in fact common and is known as a correction. There are many reasons for corrections, including profit-taking, large funds shifting to new sectors, a series of bad earnings reports or simply bad economic news. Rarely, we’ll see a pullback of 20% or more from recent highs. This is known as a bear market. Bear markets can last as short as days or as long as years, depending on market conditions.
That doesn’t mean it’s time to panic. Over the long term, the stock market goes up. It does mean you want to be prepared if you expect a downward stretch.
Here are five things you should do when the stock market heads down.
1. Don’t panic
Market volatility is a common process in the stock market, and in most cases, it shouldn’t worry you. “Most cases” means you have a diversified portfolio, and you’re not overleveraged. Even though the global markets pull back, the risk of completely wiping out your account is low.
Take a deep breath, and don’t look at your account. In the long run, the market has always performed well.
2. Don’t sell stocks haphazardly
Don’t sell all your shares when you see your account turn red. The stock market has gone through corrections, wars and economic crises, and it’s still managed to consistently go up in the long run. If you’re investing for retirement or if you don’t plan to sell your shares in the years to come, a correction and even a bear market should be nothing to worry about.
3. Use your emergency fund
If you need money right away for whatever reason, consider tapping into your emergency fund. Selling shares in a correction may result in losses or missed opportunities. But in rare situations where you simply need the money, selling your shares could be an option despite the losses you may incur.
4. Sell your short-term stocks
Companies that you hold only for the short term are often the first candidates to sell. The reason for that could be to either use the money in emergencies or to limit losses. What’s more, penny stocks and other risky investments may not recover for years. In this case, selling your riskier and short-term investments could be an option to consider.
5. Buy the stocks you want at lower prices
Market corrections, bear markets and even market crashes often present excellent buying opportunities. If you always wanted to buy a certain stock, particularly one that trades for hundreds of dollars or more, you might get it during a pullback at a significant discount. Keep in mind that it’s extremely difficult to time the bottoms. If a stock you want is at a price you’re willing to pay, don’t worry whether it’ll get a little cheaper before it bounces back.
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