Don’t Panic! 5 Reasons to Hang in there When the Stock Market Tanks
As you watch the stock market ups and downs, it can be tempting to give in to hysteria and go ahead and sell. And there’s plenty to be worried about right now, what with Greece (and other eurozone issues), a flagging China, the MFGlobal scandal, and concerns about what the Fed will come up with as it begins a two-day meeting. However, when you feel threatened and outpaced by events, you would do well to remember the immortal advice, appearing in friendly letters, on the cover of The Hitchhiker’s Guide to the Galaxy: Don’t Panic.
It’s best if you take a deep breath and consider your position. While there are legitimate reasons to unload a stock, the fact that you are afraid is not one of those reasons. Here are 5 reasons to hang in there when the stock market tanks:
1. Over Time, the Stock Market Comes Out Ahead
While there is a first time for everything, it is worth noting that the stock market has never been a loser over time. It has always gained over a 25 year period. So, chances are that, over time, this short-term volatility will smooth out and you will come out ahead. Just strap in, clutch your towel closer, and try to survive the ride.
2. It’s a Great Time to Go Bargain Hunting
In fact, now is a great time to do a little financial bargain hunting. With the stock market lower, you can get “sale prices” on many investments. Look for stocks with good fundamentals that are just going down with the general market turmoil. You can get more for your money, so you’ll have more shares — and make a bigger profit — when the market recovers later.
3. This is Your Best Bet for Beating Inflation Right Now
Realize, too, that you have a better chance of beating inflation with the help of the stock market. Inflation is the deterioration in your earning power over time. Cash products and bonds are unlikely to help you beat inflation in the long run, possibly resulting in real losses over time. Stocks can help you offset inflation, and come out ahead over time.
4. Your Portfolio Probably Needs the Long Term Growth
In order to meet your long term investing goals, chances are that you will need the help of stocks. You don’t need to get involved in stock picking to be successful; well chosen funds can be quite effective. Cash products and bonds offer insufficient returns to help you meet your long term financial goals — especially if those goals include retirement. Stocks are your best bet for accomplishing those goals.
5. You Don’t Want to “Lock In” Your Losses
As long as you are invested in fundamentally sound stocks and/or funds, your portfolio should weather this storm. However, if you sell now, your losses are no longer on paper; they are “locked in.” Unless you are selling to use the losses to offset some of your income for tax purposes, hang in there. You don’t want your panic selling to result in real losses without any real advantage. Be careful of when you sell, and how you do it.
Image source: Dan Gerhard via Wikimedia Commons