Think you have the nerves to handle the stock market?
The ups and downs could drive anyone crazy, especially when it’s your hard-earned savings on the line. For some, the stress may not be worth it.
Whether you’re managing your portfolio yourself or if you have a professional doing it for you, being savvy is key to make sure your investments yield the most for your dollar.
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No matter the drops, don’t be overwhelmed. Here are five tips that will help know what to do when your stocks drop, causing your portfolio to take a hit.
1. Stay Calm. Don’t panic when a stock (or multiple stocks) falls. What matters is the trend over time. Not every company will see constant rises. That’s OK – and you should expect that. The stock market can change in a flash because it is highly susceptible to global politics and crisis. Keeping a cool head will serve you best, especially when it comes time to make the serious decisions on where to invest the rest of your savings.
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2. Watch the trend line. Quell your stress levels and ignore the small, one-time dips. It doesn’t matter what happens in one week, or in one month. Instead, look out for the trends. If a stock has been plummeting for several months or a year, consider selling. The average gains should be your main focus. Look for stocks with high growth rates, but also make sure that stock is consistent. Any gains, no matter how small, are positive. An erratic trend line signals something else is wrong, and that it may be time to get out.
3. Keep a diversified portfolio. Because stocks are so sensitive, it’s good to spread out investments across many industries and sectors. Consider oil spills. Taxes on fast food. Increased cigarette prices. All these factors that are out of your control will impact a company’s I.P.O. But if you hold investments across industries, drops due to external factors will decline less.
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4. Constantly research companies in your portfolio. After you buy the stocks, you’re just getting started. To properly manage your portfolio, stay updated on what your companies are up to. Read the financial disclosures and press releases that a corporation puts out. These releases will give you an inside look into the company’s financial health. Check for consistency. Erratic management decisions could signal problems with higher-ups. Further analyze the company’s balance sheet to confirm there is enough to weather any potential financial storm.
5. Remember, it’s all cyclical. It’s a constant boom and bust. No matter what happens, expect ups and downs. Knowing when to hang on — and when to get out — will help you keep your spirits high.
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