Stop Pushing the Panic Button for Your Investment
Every time you hear the market turn down, you get an itch to sell your shares, cash out your investments and hide in a hole, right? It turns out that panic almost never helps investment.
Here’s the unpleasant reality: All investment requires risk. In fact, if you are a long-term investor of any kind, it is guaranteed that, at least in a few days, your portfolio will decline by a certain amount. Years of films have taught the average investor that a cut in investment means it’s time to jump out of the highest window you can find. However, as personal finance site Money Ning points out, anything that panic button does is causing even more chaos. It may even cost you more money in the end:
Take recent market volatility, for example. I know a few guys who got scared of a recession and turned some of their money into cash in February just to see the market rise a good 10% over the past four weeks. Worst of all, these people don’t actually track their performances, so they’ll likely do it over and over again. There is a reason why we urge everyone to stay updated. Doing nothing is actually tricky, but it is often the most beneficial inaction you can ever take.
More often than not, if you don’t put all your eggs in one company’s basket (diversified index funds can help solve this problem ), the market will bounce back even after severe downturns. However, pressing this panic button means that you are ready to lose now . If you click on it, any losses you have seen become reality. If you wait, the market can recover and you will never “lose” that money.
Sure, there are some good times to sell your investments, though, right? Certainly! But they rarely cause panic. Making a down payment on a home or paying major medical expenses are good reasons to sell . You can also feel safe selling if you have reached retirement age. However, panic is rarely a good reason. The correct way to avoid losses is not to panic, but to be sure that you have a diversified portfolio and that you have estimated your risk tolerance ahead of time .
Loss aversion and overconfidence predict investing mistakes | Ning’s money