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…Overall, the market was due for a pullback. It seemed like every trading day in January, the market was only rising so it is only natural that, eventually, the market was going to fall but it’s just that many didn’t think this type of volatility was going to happen so soon. Here are some things to keep in mind.
The original article by Jon Dulin has been edited here for length (…) and clarity ([ ]) by munKNEE.com – a Site For Sore Eyes & Inquisitive Minds – to provide a fast & easy read.
#1. Rising Interest Rates Change Plans
With interest rates hovering at near record lows, many investors were investing in safe stocks like utilities to earn a higher yield but, once interest rates began to rise, investors started to sell these stocks and move into less risky investments. Add with the belief now of at least 3 more rate hikes this year, more investors are starting to sell.
#2. The Market Can’t Rise Forever
The market…needed to fall back and reset, and that is what it did, but here is why there was a dramatic drop in the last few sessions.
- Most money managers set stop-loss limits for their clients. When the market dropped to a certain level, many stop-loss orders were triggered to lock in profits. When sellers outnumber buyers, the market is going to fall.
#3. No One Ever Knows When Volatility Will Strike
Based on the news and individual traders, no one saw this level of volatility coming and this just goes to show that no investor is smarter than the market. On any given day, the market can rise or fall and it can do so calmly or with reckless abandon.
How To Deal With Volatility
#1. Review Your Plan
…How do you deal with volatility when it hits the market? Your first step should be to look back on your investment plan. Why are you investing? If you set up a well thought out plan, then this volatility doesn’t matter to you…
#2. Turn Off The News
The job of the media is to get you emotionally involved and they do a great job at this…You get worried and act emotionally, which costs you money in the long run. You need to pay attention to what is happening, but then go back to the above point and review your plan. If nothing has changed, then turn off the news and go enjoy your day.
#3. Understand This Is Investing
Finally, you have to accept that volatility is part of the market… it happens all the time and pullbacks like we are seeing happen all of the time as well. Historically, corrections in the market happen 4 times a year. This means that 4 times a year, on average, the market will drop 5-10% in a short amount of time.
Final Thoughts
- Volatility can be a scary thing to both seasoned and new investors but you have to understand that it is a part of investing and that the media is trying to get you emotionally attached.
- The better you can control your emotions and follow your investment plan, the more likely you are going to be able to ride the wave and not get sucked into it so when volatility hits and you feel scared, refer back to this post to remember how to survive.