Hold tight in market turbulence

The stock market has been rocky lately, and that volatility can be concerning to investors.

Coupled with the economic uncertainty we are facing right now (including surging inflation and potential interest rate hikes this year), some investors worry a crash is looming. To be clear, it is impossible to say for sure whether a market crash is coming or not, as even the experts cannot predict exactly how the market will perform in the short term.

While nobody knows for sure what is in store for the stock market, there are a couple of reasons you should not worry about a potential crash. The most important thing to remember during times like these, though, is that the market as a whole has a very long history of recovering from downturns. In fact, since 1928, the S&P 500 has fallen by more than 20% on 21 separate occasions. And every time, it eventually bounced back.

In theory, the best investing strategy would be to pull your money out of the market right before prices fall, then reinvest when they are at rock bottom. This is called timing the market, and it is a strategy some short-term investors use to make a quick profit. However, this tactic is nearly impossible to pull off successfully. Because the market is unpredictable, no one can say exactly when it will crash or when prices will bottom out. In many cases, the market will dip only to rebound a day or two later.

If you sell and prices quickly recover, you will miss out on those potential gains. Similarly, if you wait too long to sell and prices have already fallen substantially, you may end up selling at a loss. A safer bet, then, is to simply hold your investments regardless of what the market is doing. If prices drop, try your best to wait it out until they eventually recover.

At Finura, one of our core approaches to financial planning is to use behavioural finance techniques to help our Clients uncover the drivers behind their financial decision making and not allowing our emotions to cloud our decisions which could cost us dearly. If you would like more information, please contact us here.

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Sources: Techlink