Shane Shin, founding managing partner at Shorooq Investments and Sarwa advisor, dives into the details of understanding the stock market and what to do during times of market volatility.
Whenever there is turbulence in the market, the first natural reaction that investors face is fear. Some are quick to pull out.
How, you ask? Step number one: Do nothing.
The most important thing to do when volatility hits, and you feel that stock markets are going down, is not to pull out and give in to fear. This would be a decision based on emotions and it is the worst thing to do to your assets.
Small market corrections happen every year and more major ones take place on average every 5 years. The only way for you to lose money is when you sell at a loss. You don’t lose money if you stick to your plan and wait it out.
Let’s look into these two terms: Bear markets and Bull markets.
A bull market is the condition of a financial market in which prices are rising or are expected to rise and typically shrouded in optimism. The opposite of a bull market is a bear market, which is characterized by falling prices and typically shrouded in pessimism.
In general – but not a rule of thumb – every Bear market lasts on average a little bit more than a year and there is an opportunity in that. Let’s say the market goes down 33%. You don’t lose 33% of your assets unless you are selling. But for some, it is a great opportunity to invest money and buy assets at a low price.
Keep in mind that every bear market is followed by Bull market.
A downturn in the market is a temporary thing. it is better to think long term than to panic and sell stock at a low during market volatility.
Take advantage of the downturn by investing when the prices are down and invest regularly to create even more wealth and avoid the most common mistake people make: Being emotional and selling when markets get rough.
Learn to filter out the noise and stick to your passive investing philosophy.
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