Cory Burnell on Coping with Market Drops

It would be nice if the stock market would continue to rise year after year. Unfortunately, it has periods of time when it pulls back and takes a rest. Hopefully, that pullback doesn’t go too far and create a bear market that produces losses instead of gains. During these pullbacks, it’s important for a person to look at their long-term goals.

Are they investing for the long-term and have 30 years left to invest or do they need to be more conservative and pull money out of the market when the volatility increases? Each person should have a plan and strategy so that they know how much they want to keep in the market at all times. By having a plan, it eliminates guessing and strengthens a person’s ability to cope with market drops.

Bargain Hunting

There are many different factors that are affecting the market in 2018. One of those factors is how the Federal Reserve is handling interest rates. After initiating four rate hikes in 2017, they have continued to raise rates in 2018. With a commitment to ongoing quantitative easing, it has made the market unsure about what to expect as this has never been done before.

If an event like this does create pullbacks, a bargain hunter who is well capitalized can pick up specific stocks at attractive prices. However, an investor shouldn’t just by pullbacks after stocks have retreated. There should be some criteria and form of valuation to understand where buying points should be. It’s similar to the premise of not selling stocks just because they have gone up. There should be a reason why a person decides to exit a position.

Moments Of Market Stress

When volatility increases in a market and it has days with large point drops, this isn’t the time to abandon an investment portfolio that’s been carefully constructed. Typically, a plan will have been set during calmer times. This allows a person to capitalize on periods of time that have more turmoil.

Handling Financial Panic

If financial panic attacks the markets and they have a significant drop, a person should have a simple checklist and ask questions. Is this panic capable of moving the economy into a period of recession? Are there any factors that have the capability to accelerate selling?
By asking questions and being prepared ahead of time, an individual will be ready for the swings that the market brings.