Crises that arise from political unrest or calamities make the stock market jittery, often shaking investor and consumer confidence to the core. Widespread uncertainty breeds pessimism and fears and, in turn, negatively affects the market. When it looks tough, many investors panic and think it’s time to give up. History shows that market swings are normal during times of crisis. The past also indicates that those investors who ride out the storms arrive at a wealthier destination than those who didn’t stay the course. Keep your eyes on your investment goals and sail on with these survival tips.
Consider investing as a long-term strategy for wealth accumulation, not a lottery ticket. A current decline may seem to portend doom, but it is likely a mere hiccup on an overall upward trend. Over extended periods, the market has never suffered permanent losses. Your aim is not to find the best-performing or most popular asset allocation, because today’s rising star could be next year’s black hole. On the other hand, today’s loser could wind up as a champion stock or commodity in the near future. Stay true to your goals, whether you see bulls or bears on the horizon.
All investments come with some risk of loss. Conservative investors, those with low-risk tolerance, prefer investments that are more likely to preserve their principal. Aggressive investors take on the risk of losing money to gain potentially higher returns on their principal. Knowing your risk tolerance
is an essential component of your overall investment strategy. Free online questionnaires can help you determine how much of a chance you want to take with your investments. Stock simulators also help you identify your risk tolerance. These programs let individuals manage virtual cash and experience how the stock market works.
Volatility, with all its varying degrees and durations, is an inevitable part of market activity. During a downturn, it is tempting to make financial decisions based on headlines that fuel fear. When the Dow is heading too low for comfort, it would be wise to review your portfolio and re-balance it with a mix of stocks, bonds, and other securities. Spread out risk by investing in different asset classes. This may help offset losses in one sector and provide an opportunity for gains in another. Warren Buffet recommends index funds rather than stocks of individual companies.
With consistent dollar-cost averaging, there is no need to guess when or where to invest. Invest a certain amount regularly to take advantage of high and lows. You’ll be purchasing more units when prices are low and fewer shares when the prices increase. This strategy helps buffer you against severe volatility and build long-term wealth. Default investments and workplace 401(k) plans with automatic deposits have been using dollar-cost averaging to help people earn substantial returns over the long run. This approach works well for less experienced investors or those who prefer to invest passively. More experienced investors might want to seek higher returns by actively strategizing.
The media is replete with pundits that stoke emotions. Although they appear confident and omniscient, their guesses are as good as yours. The track records of many Wall Street analysts show that it is best not to follow their advice too closely. A calm head is essential during uncertain times, so avoid looking at headlines that make you feel fearful. Many people instinctively want to reduce the risk of loss when faced with declining assets. It is important to remember that upswings and downturns are a natural part of the economic cycle. Investing experts advise against making rash decisions and encourage people to leave their portfolios alone.
Traditional IRAs are comprised of contributions from pretax income. After age 591/2, withdrawals are taxed at current income tax rates. Contributions to Roth IRAs have already been taxed, so withdrawals are typically tax-free. Suze Orman teaches that the time to convert from a traditional IRA to a Roth IRA is during an economic downturn. The investments in your traditional IRA have likely lost value, so when you switch over, your tax liability will be lower. For instance, if stocks have decreased by 50%, your $20,000 investment would drop to $10,000. You would be liable only for taxes on $10,000.
The 2008 financial crisis incited a stock market crash that wiped out $2.7 trillion of American retirement accounts. A professional adviser can guide you in clarifying your investment goals and help you take protective measures to preserve or enhance your retirement portfolio. Advisers are available online and offer economical services.
Having more than one stream of income is wise regardless of the economic climate. Channel your experience and skills into a part-time gig for a few hours a week. Many freelance opportunities are remote and do not require interaction with customers. In the process, you can establish a new income source for investing, build new marketable skills, and add to your network.
While selling off during stock market volatility is common, experts agree that it’s a huge mistake. Investment strategists note that the worst days for stocks generally give way to the best days. During past bear markets, investors lost an average of 35% but typically recouped their losses within two years, according to Suze Orman. Researching data going back to 1930, Bank of America analysts discovered that investors who missed the S&P 500’s ten highest days in each decade lost out significantly. Their total returns would amount to 91%, compared to the 14,962% return for those who stayed in the market through the setbacks.
The 2008 recession stripped millions of jobs from Americans. Store up as much money as you can while you still have a job so that you can ride out any disruption in employment. Financial experts recommend saving at least six months’ worth of expenses in an interest-bearing emergency savings account. Include your investment contributions in your expense calculations. You are paying your future self and loved ones.
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