Investing | Article
Oh No! My Stocks Are Falling in Price, What Should I Do?
by The Simple Sum Team | 25 Feb 2022 | 5 mins read
The one colour that no investor likes seeing is red because that’s a sign that your stocks and investments are not doing well.
And as the number gets bigger and bigger, it gets scarier as it’s not easy to see a huge loss on your investments and you worry that it might continue to fall.
In some cases, it might be because you didn’t do enough research about a company before buying their stock, or you bought into a failing company. It might also occur because you didn’t diversify your portfolio.
And then there are the times that you did everything you should have done and yet the value of your investments is tumbling because of large global events, like a potential war, or a pandemic.
Seeing your portfolio in the red and not knowing when or if your investments will bounce back tests the resilience of even the most seasoned investors. So you might be asking yourself, what should I do at a time like this?
Stay calm and carry on
Don’t panic and definitely do not immediately exit the market because of fear. Just because the markets (and the world) seem to be in a crisis, it doesn’t mean that you immediately abandon your financial plan.
Yes, the sting of losing money can be hard to bear, but before you go selling your stocks to cut your losses, do your due diligence. Assess the situation, your investments, and your goals first before making any moves.
Keep an eye on the news but don’t let the news scare you
It’s not possible to make an objective assessment of your investments if you know nothing of what’s going in the world. After all, global events such as conflicts, wars and pandemics do have an impact on specific sectors and countries, and these impacts can affect your investments in the short term.
Being aware of the developing situation, and actively gathering information and insights from different sources can inform you about the impact of the event, and whether they will be short-lived or not.
If it helps, try talking to a financial professional to better understand the impact of the situation on your investments to help calm your nerves.
Don’t try to predict the direction or outcome
Some investors have the idea to sell their investments now to cash out so that they can buy back at a lower price. Whether it’s market movements or the outcome of the event, stay clear of making predictions and trying to time the market based on those predictions.
That’s because whenever a crisis – natural or political – happens, we usually have no clue what’s happening on the ground. Also, because these events are happening in real-time, we won’t know how the market will react to them in the short term and you could end up endangering your long-term financial plan if you try to time the market.
You may also be tempted to take advantage of the drop in prices and put more money into the market. But the truth is that timing the market is easier said than done most of the time —prices may plunge down even further after you put money into the market, causing your losses to be even greater.
Stay focused on your goals
Instead of constantly worrying about where prices are going, it’s better to focus on why you started investing in the first place.
Most of us invest to grow our wealth so we can fulfil our financial goals, whether it is to fund our retirement, pay for a home, or our children’s future. These goals rarely change in the midst of geopolitical tensions and you won’t be doing your future self any favours by giving into fear and abandoning your financial plan just because the markets are volatile right now.
If you’re feeling uneasy about your investments dropping in value, put your goals in focus. For long-term goals such as retirement, it’s inevitable that your investments will go up and down during that time frame. What you can take comfort in is that the market and economy will recover eventually as history has proven, as long as you are able to ride out the downs.
As Charlie Munger puts it, “If you’re going to invest in stocks for the long term or real estate, of course there are going to be periods when there’s a lot of agony and other periods when there’s a boom…And I think you just have to learn to live through them.”
Doing nothing different might be the best thing you can do
Instead of constantly looking at the falling numbers and subjecting yourself to unnecessary worry, perhaps the best thing to do when it comes to your investment is to sit tight and ride out the ups and downs of the markets.
Time and time again, the markets have proven its ability to bounce back no matter how big the crisis, and you’ll do better by sticking with your investment strategy and continuing to dollar cost average into the market, the same way that you would any other day in the year. Stay invested and wait for the markets to do what it always has done.