There’s always speculation about stock market ups and downs, but the truth is, no one really knows WHEN a downturn will happen.
One thing is certain, though. There WILL be a downturn. In fact, if you’re investing for the long term, you’ll face many ups and downs throughout your journey.
On the bright side, over time the markets have been up more than they’ve been down. Even better, the BEST periods of growth are often after a rebound. Following some of the most recent bear markets, the markets hit a new high in less than three years.
When markets get rocky, the impulse to “do something” with your investments can be powerful. So, how can you stay strong during a downturn?
Accept that ups and downs are normal
Market ups and downs are nothing new. They happen because of economic cycles, global events, or shifts in market sentiment.
Yet history shows us a clear pattern: markets generally recover and grow over time.
Trying to game the market by selling low and buying back at “just the right time” rarely works. In fact, it often does the opposite.
It’s tempting to think you can buy back at the “perfect” time. But even professional investors find it challenging, if not impossible, to consistently time the market right.
Diversify your portfolio
Diversification looks different for every portfolio, with the right mix of investments dependent on variables such as age, risk tolerance, and goals. Regardless, it’s never a good idea to have all your eggs in one basket.
Imagine you put 100% of your savings into a single stock, and the company goes under, taking your hard earned money with it. This may be an extreme example, but it illustrates the importance of diversification.
When your assets are properly diversified with different stocks and asset classes, you can minimize the impact of market lows and accelerate recovery.
Focus on the long term
In investing, one of the most powerful advantages you have is time.
Market downturns, corrections, and even bear markets are part of a natural cycle that tends to favour those who stay invested and focused on their goals.
When you stay invested, your returns have the chance to compound—meaning your gains can start generating their own gains.
Compounding is one of the most effective ways to grow wealth, but it only works if you remain invested.
Trying to time the market or frequently moving in and out disrupts compounding’s impact, often slowing your progress toward long-term goals. Instead, tap into the power of dollar cost averaging. This means investing a fixed amount regularly, no matter what the market is doing. You’ll have more purchasing power when the markets are low, balancing out any losses with a more robust portfolio when they bounce back.
Drown out the noise
When markets dip, it’s hard to avoid the flood of opinions and analysis from friends, family, and the media.
Headlines predict doom, talking heads debate worst-case scenarios, and even well-meaning friends might share what they’re doing with their portfolios.
But remember, the media’s job is to capture attention, not necessarily to give sound financial advice. During downturns, headlines often get more sensational, feeding into fear and uncertainty.
And your friend’s decision to sell or your relative’s new investment strategy may be right for them but wrong for you.
It can help to set boundaries to limit the influence of external opinions on your financial decisions. This might mean checking your portfolio less often, limiting exposure to financial news, or even politely avoiding investment discussions with friends during downturns.
Put things in perspective
It’s natural to feel uncertain during market drops, but remember that they’re temporary. Keeping your goals in sight and sticking with your plan can turn market lows into long-term gains. Weathering the ups and downs isn’t easy, but it’s all part of the journey.
A detailed plan to reach your goals can help calm your nerves when the market drops. For expert guidance to keep you focused no matter what happens in the markets, book a call today.