During your investment journey, you will inevitably experience both ups and downs. Periods of stockmarket volatility might tempt you to throw in the towel, but it’s vital to remain focused on your objectives and to look at ways you can weather any potential storms.
Here are some of the techniques which can help you stay on the right track to financial fitness.
Have the confidence to adapt to your environment
Stockmarket falls can worry even the most confident of investors, but adopting a flexible approach can help you take advantage of market volatility. You’ve probably heard the old investment adage “buy low, sell high”. This means increasing your holdings when prices are low, and consolidating gains when the time is right. The benefit of doing this is that buying when prices are low reduces the average acquisition cost of your investments, and it also means you don’t get too attached to a particular investment.
Remember though that prices could fall further, and there is always the chance you could get back less than you put in.
Investing is like exercising - you need to stay active and alert to give yourself the best chance of success. That means not just buying investments and then sitting back hoping that they’ll do all the hard work for you. You need to monitor how they are performing so you can act accordingly. Bear in mind, however, that investing is a long-term pursuit and holding your investments for at least five years, but preferably longer, removes the temptation to try to time the market, which could mean buying or selling at just the wrong time.
Know your limits
When working out your investment strategy, adopting a buy-and-hold approach can ensure that you stay invested throughout market cycles, as even missing just a few of the best days can have a major impact on your long-term returns. However, this doesn’t mean you shouldn’t monitor your investments and you’ll still need think about what price you’d be comfortable to sell your investments and make a profit on the upside, and at which point you’d want to cut your losses and sell on the downside. This will be down to you to decide. Some argue that when it comes to cutting your losses you should never lose 10% on an investment; whereas others use a percentage of the value of their full portfolio as the trigger, but only you will know which approach you are comfortable with. If you’re unsure, seek professional financial advice.
Try to keep your emotions out of your investment decisions
It’s perfectly understandable to feel a sense of fear or panic when you see the funds or investments you have put money into fall in value, and a sense of excitement when they increase in value.
However, letting your emotions control your investment decisions can be a costly mistake, so you need to remain focused on why you picked your investments in the first place. Although keeping a close eye on your investments is important, try not to over-analyse every movement, and remember that you are in it for the long-term. Regular investing can help you become a more disciplined investor, as you invest regardless of whether the price is high or low. Committing to a plan that invests automatically can help take some of the emotion out of investing and avoids any delays in putting your money to work.
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In case you missed it, you can see Step two: Stay motivated, or start from the beginning with Step one: Set your goals.