How to handle a stock market like this The motley fool

The stock market opened sharply lower on Tuesday morning as investors continued to rotate away from some of the top performers over the past year. But over the course of the morning, large market indices recovered a large portion of their losses for the day. From 11:15 AM EST, on Dow Jones Industrial Average (DJINDICES: ^ DJI) decreased by 84 points to 31,437 after being lower by more than 350 points in one step. In the same way has S&P 500 (SNPINDEX: ^ GSPC) recovered from as much as a 70-point decline to get rid of just 22 points at 3,855, and Nasdaq Composite (NASDAQINDEX: ^ IXIC) trimmed its losses by more than half, although it remained 207 points to 13,326.

There is a great deal of concern among investors that after recovering so quickly and vigorously from last winter’s coronavirus – driven bear market, now is a perfect time for another stock market crash. It is always an opportunity, and it is a danger that every investor must get used to and be prepared for. But just because you’re ready for a crash does not mean you have to feel that level of anxiety every day. There are ways to get used to investing in turbulent markets and even eventually reach a comfort level with it.

The front of the New York Stock Exchange, with flags hanging from the top of the columns.

Image source: Getty Images.

Do not let headlines scare you

The first thing to remember is that if you watch financial news, you will hear about all the most extreme examples of what is happening in the stock market. This morning, for example, everyone was confused about the massive decline in inventories in the electric vehicle industry. Tesla (NASDAQ: TSLA) always get headlines no matter what happens to the car manufacturer, and news that Tesla shares were down as much as $ 95 made for a sensational fortune conversion for the high-flying car stock.

EVs were also fed into the craze for specialty companies. A SPAC announced an agreement with an EV manufacturer, which Churchill Capital IV (NYSE: CCIV) finally moved beyond the rumor mill and dyed one fixed agreement with luxury EV-starting Lucid Motors. But when the deal was announced, the stock actually fell by almost half from perch over $ 60 per share just yesterday morning. Some investors seemed disappointed with the size of the stake that SPAC received, while others simply seemed ready to sell the news of a real deal after offering the share price on the speculation before the agreement.

Some other pockets in the market also fell sharply, giving back the latest gains. But for most of the market, the movements were uneventful. Even at the worst levels of the day, reductions of 1% to 2% for the key market benchmarks show how far from a complete crash the market is right now.

keep your eyes on the price

The second mistake many make on tough market days, which today is to believe that large market falls are not part of the overall plan for their financial success. Everyone loves to see charts that show that their portfolio value goes up smoothly and consistently year after year, decade after decade, until they reach retirement. For many, it is the consistency that they long for even more than the actual estimate of the stock price – and they may well give up a few percentage points of return if they could have a smoother journey along the way. But if you want top returns from the most promising stocks, there is no alternative to managing volatility.

The best defense is simply to remind yourself why you own the shares in your portfolio. Sometimes a news item will affect your real opinion about the company’s potential, and in that case you may have a tough decision. Much more often, the news that sends the market to release has little or nothing to do with the companies whose shares you own. In that case, just nod and make sure you still have the stock for the right reason.

You can do it!

Finally, if your nerves kill you, comfort yourself in the fact that you are not alone. Beginners and experienced investors are afraid of tough market days like this. I have been investing for 35 years, and these days I am still on the edge. Just trust that you will be able to do it, and you will find that even if it is never easy, it will be lighter over time.

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