If
you panic in a downturn and «sell low,» and then you only «buy high» after stocks have become expensive, you'll miss out on opportunities to increase your net worth.
It's easy to say that you have a long time horizon and you won't
panic in a downturn.
Not exact matches
The first followed the
Panic of 1837, which triggered
downturns in states that had invested
in canals and railroads, or that had insolvent state - run banks (this latter problem is echoed by Puerto Rico, whose Government Development Bank is
in deep trouble).
The
panic soon became self - perpetuating, with a reduction
in foreign capital leading to a slowdown
in economic growth and a drop
in commodity prices, which then led to investor confirmation of an economic
downturn, which
in turn led to more capital flight, and so on.
The last thing you want to do is be a forced seller
in a
downturn because
panic will be everywhere.
Back then, the main reason for
downturn in prices was obvious: the credit crisis and subsequent
panic about global economic growth.
A typical scenario is that
in the midst of a market
downturn, investors
panic and sell out, with the intent of waiting for the market to «bottom out» before reinvesting.
If Diane buys
in all at once and we have a
downturn in the next few months, she may be at risk of selling
in a
panic and abandoning her investment plan permanently.
This is important because investing more aggressively than you handle emotionally may lead to you selling stocks
in a
panic during market
downturns, which could turn temporary losses into real ones.
Still, investing a lump sum
in the equities market makes sense only if you won't
panic and sell
in a
downturn in the equity markets.
Revel
in the gains, but don't
panic over the losses — and, above all else, don't sell your mutual funds during a
downturn.
It's an important role though because the risk is for many investors is that they will
panic and sell
in a
downturn and swear off stocks altogether.
Here is a final thought from one of the greatest investors of our time to help you keep perspective amidst the fears of a market
downturn: «
In 20th century, after 2 world wars; a Great Depression; recessions / financial
panics; oil shocks... Dow rose from 66 to 11,497.»