Stock Market Plunge: Have A Plan
Updated: Mar 20
Coronavirus has been plauging the stock market for weeks pushing the markets to record lows! Market volatility can lead to some serious stress on the part of new and old investors alike. The constant up and down of the market can bring fear to even the most seasoned of investors. There are periods that are less volatile, but the days with no movement in the major market indices are few and far between. When dealing with market volatility, it's important to keep several things in mind to avoid making major mistakes.
Have a Plan
Have a plan that’s made for you and your retirement. Taking on the appropriate amount of risk for your situation can be the most important thing you can plan for. Proper planning wins the race. Sticking with your plan will allow you to take advantage of the periods when the stock market is down. You'll be able to buy more shares.
Dividends and interest tend to keep coming whether the Dow Jones Industrial Average is down or up on a given day. It's true that there are situations that will lead some companies to cut or suspend their dividends. However, most companies will keep paying out dividends as long as possible because a cut is a sure-fire way to lose investors and see the price of your company's stock drop like a rock. Dividends from stocks and interest from bonds are two of the best ways to deal with volatility. You should keep reinvesting the capital your investments throw off. When the market is down, you'll be able to buy more shares, and this will add to your flow of dividends and interest. By reinvesting during periods of volatility, you'll be able to increase the power of compounding greatly.
Emotions drive short-term moves in the market. The reason stock market corrections and bear markets are so worrisome to investors is that upside moves are almost always driven by reason and operational earnings expansion in high-quality companies, while plunges are driven by emotions. These emotions can lead to some wild short-term swings in the stock market, but they're always outweighed over the long run by reason and operational earnings expansion.
The impact of this market plunge is different for everyone. This is why it’s important to have a plan in place that is made for you. How much risk should you be taking on in retirement? If your portfolio gets out of balance, it's a good idea to rebalance it in the event of a major market downturn to take advantage of the sale price on stocks. If you have cash sitting on the sidelines, volatility to the down side can be a great time to put that money to work.