Investing in stocks can, at times, feel like riding a roller coaster — an experience I don't tend to enjoy. And this week is a prime example of how nerve-wracking owning stocks can be.
Like many investors, my stock portfolio has taken a massive hit during the latter part of January. Part of the reason is that the entire stock market is down. Another part of the reason is that a few of the specific stocks I own nosedived on the heels of negative news in their quarterly earnings reports.
While seeing a massive loss on screen is hardly comforting, I'm not losing sleep because my stock portfolio isn't looking so rosy right now. Here's why.
1. I have no plans to sell my stocks anytime soon
We all have our own reasons for investing in stocks. Some people might invest with the hopes of making a quick buck (a strategy that often fails). Others might invest a lump sum of cash earmarked for a near-term goal, like a down payment on a home, in an effort to give that money a boost (again, not recommended).
My strategy in owing stocks is to invest in quality companies and hold onto my shares for many years — specifically, until retirement. And since I'm not planning to retire for several decades, I have no plans to cash out any of my stocks in the near term.
As such, I'm not all that bothered by a drastic dip in my portfolio's value. If I sit back and ride out this current wave, there's a good chance my portfolio value will come back up in time.
2. I have plenty of cash on hand for emergencies
Some people might adopt a buy and hold approach to stocks, only to have to change their tune when unplanned bills pop up out of the blue and they need to liquidate investments to cover them. But I've taken steps to avoid landing in that situation.
My savings account has enough cash in it to pay for about a year of essential expenses. Some might argue that that's too much cash to have rotting away in a savings account paying virtually no interest. I see where they're coming from, but this system works for me. And because of it, I'm not worried about having to tap my portfolio in the near term and lock in losses.
3. I'm using this as a buying opportunity
Some people may be inclined to stay away from the stock market during a downturn. I like to take the opposite approach.
There are a number of stocks I've been looking to own because I think the businesses behind them are solid and have strong growth potential. The only reason I've shied away is that stocks have been generally overvalued, so the share prices I was looking at didn't sit well with me. Now I have a chance to scoop up those same stocks at a much lower price point.
Of course, this isn't to say that I'll end up buying at an absolute low. That's not something I can predict. But my goal isn't necessarily to buy at an absolute low. Rather, it's to buy at a price where shares have room to grow.
We'll get through this
I won't lie. As much as I've been through stock market downturns before, it's unsettling to see my portfolio value decline substantially in such a short period of time. It's also unsettling to me to be tossed around on amusement-park rides, but I'll put myself through that temporary torture for the sake of my kids.
The point is that just as I can talk myself through three minutes of twisting and turning on a ride and the inevitable nausea that comes with it, I can also talk myself through this current bout of volatility — and you can do the same.
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