Trade fights and recession fears have had the stock market taking investors on another of its infamous white-knuckle rides. The Dow Jones Industrial Average goes down hundreds of points one day, up hundreds of points the next.
Turbulent times like these might have you thinking about pulling out your money and putting it into a crawl space. But that's the worst thing you could do.
Resist the urge to get off the roller coaster. Here are three good reasons to keep calm and invest on.
1. The market is resilient
No matter how awful things may look on a particular day or during a particular week, stocks generally make back their losses and then some.
"In the short term, the stock market could fluctuate up and down," says Tenpao Lee, a professor of economics at Niagara University. "In the long term, the stock market will always move up."
The market's recent behavior is nothing out of the ordinary, says Dave Nugent, chief investment officer for the automated investing service Wealthsimple.
"Although the headlines certainly sound scary, it's important to remember this simple rule of smart investing: drown out the noise," Nugent said, in an email to investors.
2. You have goals
Aren't you invested for the long haul, working toward a big goal down the road — maybe a comfortable retirement? The worst thing is to go off track by ditching investments just because Wall Street has a rough couple of days.
If volatility in your accounts keeps you up at night, maybe you need to reevaluate your investment mix. Your money should be diversified, to help you weather these storms.
The best approach is to not look at your battered balances and keep your hands off your portfolio. Think about using an automated service that will automatically adjust your investments in the face of changing market conditions.
"Focus on what you can control: paying low fees, holding a diversified portfolio and automating your finances," Nugent says, "so you're less likely to react emotionally to short-term fluctuations."
3. Market downturns are great times to buy
On those days when the stock market takes a beating, don't think about what you're losing. Instead, focus on what you could be buying. A market plunge or "correction" makes stocks cheaper.
Don't be afraid of taking on new investments whenever the overall market goes into the tank. But that doesn't mean you should go all-in on any one stock, Professor Lee warns.
"Many that used to be solid companies have disappeared or have been in trouble in the last 10 years, e.g. Sears, General Electric, Xerox, Eastman Kodak, Lehman Brothers, etc.," he says.
A well-diversified portfolio is best for dealing with market volatility, says Nugent. "Your best course of action? Stick to your plan," he says.
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