Ai! After times of prosperity, stock markets are down sharply in the first quarter of this year. Whether it was the stock prices that analysts said rose too hard, the war in Ukraine or inflation; the fact is that the first quarter saw many losses. And that makes investors very nervous. But we don’t! For we maintain our composure. How we do that? We called with Freddy Forger of asset manager Stoic. He gave us valuable tips. Herewith 3 tips during tough times in the stock market.
3 tips during tough times in the stock market
In this article, we’re going to help you keep your cool. We will do so using 3 tips. Read and learn carefully, and above all, don’t let the red numbers in the stock market fool you.
- Focus on the long term
- Invest staggered
- Focus and ignore
Tip #1: Focus on the long term
If you want to use your invested money in the foreseeable future, then of course price drops are S.H.I.T. Before you know it, the price of your stock or index is lower than the price at which you entered a while back. And when sold, that just means a loss, and that hurts. That, of course, is not why you started investing. After all, we still invest for wealth accumulation (or at least wealth preservation).
Warren Buffet said it all: the first rule of investing is not to loose money. The second rule is to never forget number one.
If you want to use your money within now and 10 years, you really shouldn’t be investing in stocks at all, Freddy Forger of Stoic tells us. Because the historical facts tell: it can easily take up to about a decade for any stock market correction (a crash or recession) to recover. So that means that money you can spare for longer than 10 years is fine to invest in stocks, but money you need sooner better not, because it poses a risk.
If you stick to this rule, then you can ignore prices in the short term just fine. Just as you don’t constantly check the balance in your savings account either, when investing on a term longer than 10 years, you don’t need to constantly check the stock prices, Freddy said.
Ah, that’s nice. Just invest and forget about the short-term red, flickering numbers in the stock market.
Tip 2: Invest spread out
Should you have money left over that you could spare for about 7 years, this drop in the price is just the right time to get in. The facts tell us that the payback period just after a downturn is inherently shorter than before a drop in stock prices – about 7 years.
It is important, however, that you invest this money in an index that represents the entire global economy. Freddy mentions the MSCI All World Index. After all, no one has a working crystal ball: no one can predict which stocks will do well and which won’t. Better to spread your money invested in stocks over the entire global economy. Because in the short term, prices may bounce in all directions, but in the longer term, the global economy is always growing.
Want to know more about investing in an index/ETFs? Then check out this article.
Tip 3: Focus and ignore
The ancient Greek Stoic philosophers already knew: There is no point in worrying about things you have no control over anyway. Focus only on things you can influence. Translated to investing, this means: stock prices and returns we cannot influence, so better not worry about them (see point 1). But what you do have a say in is the fees charged by your investment party.
The more expenses you incur for such things as transactions, management and funds, the less money you have left for yourself. So when choosing your investment party, pay close attention to costs. However, it is also true: there’s no such thing as a free lunch. So free – which some parties advertise – is never completely free. So check the fine print. Check out our brokers page to compare fees.
Last but not least, in bad times popi jopis who secretly take too much risk (and entice you to do the same) are always exposed. Warren Buffet once described this as: “When the tide goes out, you discover who’s been swimming naked.” So in times of prosperity, it is just as important to keep focus and ignore everything else.
Check out the article on the Stoic website here.
