Jan 27, 2020
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Coronavirus fears have had investors feeling feverish as they observe stock market drops. The Dow Jones Industrial Average has gotten hit hard as money has been flowing out of stocks and into bonds, which are typically seen as safer investments during times of uncertainty.
The market turbulence may have you wondering if you should go even further — and take your money out of stocks and put it into a shoebox under your bed.
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That could be the worst thing to do. Don't be so quick to throw away your investments. The SARs outbreak and the Ebola outbreak had seen similar market drops, only to rebound within the year.
Here are three good reasons to keep calm and invest on.
1. The market is resilient
Stocks always bounce back.
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."
Humans are emotional creatures, and we can react impulsively when afraid. Smart investors shake off the panic and keep their eyes peeled for buying opportunities, knowing that the market will come back.
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2. You have goals
A downturn is a good opportunity to reflect on your long-term goals.
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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. Consider enlisting the help of a financial adviser if you don't feel confident enough in your decision-making skills during times of crisis, and don't get spooked by routine short-term fluctuations.
More: Get your assets managed stress-free by Facet Wealth.
3. Market downturns are great times to buy
Go shopping -- for stocks at cheap prices!
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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.
A better approach is to hold a well-diversified portfolio, favoring ETFs, so you're protected when stock market volatility comes to bear.
There are several robo advisors that automatically adjust your investments in the face of changing market conditions, and focus primarily on investing in low-cost ETFs to maximize your portfolio's diversity.
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Doug Whiteman was formerly the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."
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