3 Things Not to Do During a Stock Market Decline

Photo by  Matt Bowden  on  Unsplash

Photo by Matt Bowden on Unsplash

If you’ve seen any financial news lately, you’re aware of some of the ups and downs the stock market has experienced. Stock market volatility is not uncommon, but that doesn’t make it any less scary to stomach.

However, periods of uncertainty present some of the biggest opportunities for investors to sabotage their financial plans. Here are three things you should avoid doing during a stock market decline.

1. Don’t Sell Your Investments

When I first started Hale Financial Solutions in 2016, I had a conversation with a potential client that went something like this: “Well Tim, I sold all of my investments in 2009 and just let them sit in cash. I now feel like I’m ready to get back into the stock market. Can you help me out?”

I was certainly willing to help this person, but I had to ask: “Why did you sell in the first place, and how can you be certain you won’t sell the next time the stock market takes a dip?” He had sold at the lowest (and I’ll admit--the scariest) time in recent market history, and waited a long time before deciding to get back in. The stock market had grown nearly 300% by the time he was ready! This is not a formula for successful, long-term investing.

If you’re thinking of selling your investments, remember a couple of things. First, you don’t lock in your losses until you sell your investments. Resisting the urge to sell now keeps you from having to make a hard future decision: having to decide WHEN to get back into the stock market--something that even the professionals are very poor at timing. Second, if you really can’t handle the ups and downs, visit with a competent financial professional who you trust. If you’re having a hard time sleeping at night, some small adjustments to your portfolio may be in order.

2. Don’t Let Fear Overwhelm Reason

I’ll be honest, 2008-2009 was a scary time for me. I felt quite confident in my knowledge of financial markets and how economies tended to work over the long-haul, but with daily stock market declines of 4 or 5%, I was tempted to put that knowledge on the shelf and build an underground bunker.

Hindsight is always 20/20 and since 2009 we’ve experienced a nearly 10 year bull market, but here we are again, facing another market drop. The lessons of the past can quickly take a back seat to reacting to the immediate present.

Do yourself a favor. Take a deep breath and remember that most investors out there aren’t investing their money only to withdraw it next month or next year. Most of us will grow our wealth over decades and gradually drawn it down over decades more. There is time to withstand and overcome market dips. Keep your head about you and, in the words of Sir WInston Churchill, “keep buggering on.”

3. Don’t Pay Attention to the 24-Hour Financial News Cycle

Have you ever noticed how much more common it is to see financial headlines with negative news than positive news? Why do you think that is? Part of it has to do with human behavior. We tend to react more severely to scary results than positive results. A 2% drop in the stock market leaves us wondering: “What happens next? What about my retirement? I’d better watch the news to find out!” We react just the way the media wants us to.

But this is probably one of the worst things you can do. Financial pundits love a juicy story, and turbulence in financial markets is great news fodder. Unfortunately, it can lead you to make decisions that can be devastating to the long-term performance of your investment portfolio. Do yourself a favor and turn off the 24-hour news cycle.

So what should you do during a stock market decline? I hate to disappoint you, but as long as you have a well-built, reasonable investment plan and enough time (multiple decades) to withstand market turbulence, you should do pretty much nothing.

I hope this article has been helpful. If you continue to have a hard time stomaching market ups and downs, feel free to contact me. Even having a sounding board to express your concerns can help you weather the financial storms of life.