5 Things Market Investors Should Avoid Doing Now
/- Don’t Fixate on the News: The more often you update yourself on the market’s fluctuations, the more volatile and risky it will appear to you. Stocks sunk worldwide this week, but fixating on that news and short-term, sharp declines in the market will make it harder for you to stay focused on your long-term investing goals.
- Don’t Panic: According to data from Yale University economist Robert Shiller, U.S. stocks are trading at 24.9 times the average of their long-term, inflation-adjusted earnings, down from 27 in February. Over the full sweep of bull and bear markets in the past 30 years, stocks traded at an average of 23.8 times adjusted earnings.
- Don’t be Complacent: Ask yourself honestly how you are fairing in current market turbulence and especially whether you are prepared to withstand a much worse decline. Protect yourself by ensuring your portfolio is extremely well diversified, with plenty of cash, some bonds, and with large and small stocks from markets around the world.
- Don’t Get Hung Up on “Corrections”: A correction is usually defined as a 10% decline in price on a widely followed index. However, the outlook for the future is more important than these corrections, because outlook is not dependent on whether the market is down 10.2% rather than 9.8%.
- Don’t Think You or Anyone Knows What Will Happen Next: No one knows what the market will do next, not after a market drop nor at any point in time. Stocks could drop another 10% or 25%, they could stay flat, or they could go right back up again. Diversification, patience, and self-knowledge are your best weapons against this complex uncertainty.
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