A Rough Start to 2016
While 2015 might have seen a soaring stock market, 2016 has already been off to a much bumpier start. Wall Street approached a correction market, as stocks were down a staggering 10% from recent highs. A couple of reasons analysts point to for the decline include a softening Chinese economy and low oil prices, which are currently below $30 a barrel. Additionally, the American economy showed recent signs of softening as well, with weak retail sales numbers coming in from the end of 2015.
The declining stock market could have many investors fleeing, but analysts and market experts often see these periods as the best time to make certain investment decisions. Here are 5 ways to handle a market that seems to be in freefall:
- Don’t Immediately Sell
There tends to be a sense of impending doom and panic whenever there’s a significant sell-off, particularly like the one that ended the second full week of trading in mid-January, when the Dow tumbled 391 points. While it’s natural to want to panic, experts say opting to sell at the moment markets are going down is the worst thing you can do.
- Focus Your Buying and Selling On Your Needs
Rather than buying or selling based on the ups and downs of the market, it can be wise to instead base these decisions on when you need the money. Look at the stock market as an emergency savings account and sell if you run into a situation where you need the funds, rather than when you’re feeling panicked about the current economic situation.
- Look at Your Long-Term Performance
Before making any significant decisions, particularly based on a few days’ worth of market activity, evaluate your long-term performance. You may find that if you’ve been in the market over the past few years you’ve done incredibly well, and it’s better to keep following this trajectory, rather than selling when prices are low and trying to re-enter when they’re high again. Stocks are an investment that are meant to be a long-term earning solution, so don’t let a scare convince you otherwise.
- View It As a Buying Opportunity
While a stock market decline can trigger serious anxiety and even a sense of panic, smart investors often see it not as a bad thing, but rather as an opportunity. There may be investment opportunities you’ve wanted to take advantage of, but they were otherwise priced too high. Make lower prices beneficial to your portfolio, rather than something that causes fear and selling decisions.
- Make Sure You’re Diversified
The more diversified your portfolio, the better able you’re likely to be able to handle even a pretty significant market downturn. In most instances, even a big decline in the overall market isn’t going to impact every stock. Play it smart throughout the year and you’ll be fortified against potential economic headwinds.
Looking Forward to the Remainder of 2016
As we start 2016, there has certainly been some difficult economic situations gripping much of the world, and investors are also closely watching the Federal Reserve’s decisions, which could include an interest rate hike. The best advice for investors is to remain vigilant but not let their decisions be made because of fear. If investors can prepare themselves for ups and downs they can turn even declines into money-making opportunities.