The last few years have seen more market volatility than anyone could have predicted, with the icing on the cake being the COVID-19 pandemic. But the best and worst thing about markets is their cyclical nature. All markets recover, eventually.
We know what to do when there’s a downturn and experience has taught many investors some hard lessons with recent stock market crashes. But what about an upswing? What do you do when the markets recover – and what should you avoid?
Don’t.. let it get to your head
Sometimes, it’s helpful to think of the stock market as a wild animal: make no sudden movements. Just as good financial advisers tell people not to panic and sell low in the nadir of a stock market crash, people should also not get overly excited when markets start recovering and buy everything in sight.
An economic downturn is not the time to cash in your retirement and an upswing is… also not the right time to do it. So, when is?
Do… keep to a big picture plan
The best time to do something like cash in your retirement savings, add something new to your portfolio or dump certain stocks is when it works in line with your long-term goals, specific to your goals and your risk appetite as carefully thought out by you and your financial adviser.
If you watch only the market, you will be tempted to buy and sell everything you own several times a day. If markets are nose diving but you are thirty years away from retirement, that nosedive has absolutely nothing to do with you. Keep to a long-term plan as worked out by your financial plan to avoid going crazy and not being blown about by every single headwind.
Do… stick to the classics
Tried-and-true brands and names that have stood the test of time are likely to survive your long-term plan. Go for “Think of your Warren Buffett-type companies: the Visas, the Microsofts, the Coca Colas of this world… the biggest companies that you are 100 per cent sure can get through recessions, coronaviruses, or any other panics that may come along,” advises David Coombs on This is Money.
If the markets are just beginning to recover, you can likely acquire stocks at a lower price than usual. Just make sure you get it before they get too expensive again.
Don’t… go it alone
There is a reason why financial advisers, wealth managers and stockbrokers have full time jobs. Not only is being able to deeply understand the stock market a very hard-won skill honed over years, it’s a very risky one that can turn on you at any moment.
The value of expert financial advice is irreplaceable when it comes to anything on the stock market, even seemingly simple scenarios like a market recovery.
