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It’s no secret that the stock market has been in a slump for much of 2022. Not only have certain sectors (hello, tech) been hit notably hard, but stocks, on the whole, have landed in correction territory, marking a decline of at least 10% from their previous highs.
To be fair, stock market corrections are actually pretty normal, common events. But if you’re a newer investor, you may not quite know how to handle one.
Even if you’re a more seasoned investor, the reality is that many of us haven’t had to deal with a stock market correction for quite some time. Sure, stocks gave us a scare back in March of 2020 in the wake of the COVID-19 outbreak, but that bear market was fairly short-lived. Since then, stocks had enjoyed a nice rally until earlier this year.
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Regardless of how much investing experience you have, it’s important to steer clear of certain mistakes when stock values are down. Here are three big ones to avoid right now.
1. Panic selling
It’s hard to sit back and watch your portfolio value drop from day to day. But remember, the losses you’re seeing are merely losses on screen. You won’t lock in actual losses until you liquidate stocks at a price that’s lower than what you paid for them.
That’s why you must pledge to avoid selling stocks out of panic. If you need to force yourself to stop checking your portfolio until market conditions improve, so be it.
2. Not buying more stocks
You might assume that buying stocks during a correction is a bad move, since there’s the possibility that investment values could sink even more. But there’s also a good chance that stocks will recover from this current downturn, so if you keep investing, you might manage to benefit in the form of lower share prices.
Say there’s a stock you’ve been eyeing that was trading for $300 a share for most of 2021. If that stock is now trading at $260 a share and you still believe that it’s a fit for your portfolio, then there’s no reason not to buy it.
Sure, you might buy at $260, only for shares to plunge to $240 a week or two later. But they might then come up to $310 a few months or years after that. If you’re investing for the long haul, that’s not a problem.
If you’re uneasy about buying individual stocks at a time like this, you can always fall back on broad-market exchange-traded funds (ETFs). The upside of going this route is not having to spend too much time strategizing about which specific companies to buy. Rather, you’ll get to invest in numerous companies in one fell swoop.
3. Replacing stocks with even riskier investments
Because stocks have been so volatile lately, you may be inclined to put your money into other assets, like crypto. But if a fear of losses is driving that decision, then cryptocurrency probably isn’t a very good solution.
The crypto market can be far more volatile than the stock market, and because digital coins are a fairly new investment, we don’t know exactly how much staying power they have. As such, if your investing strategy has always centered on buying stocks with long-term growth potential, then moving to crypto right now may not make sense.
This isn’t to say that you can’t add a small amount of crypto to your portfolio. But now may not be the time to go heavy on digital coins — especially if your goal is to mitigate risk at a time when stocks are down.
It’s a tough time to own stocks — there’s no question about it. But avoiding these mistakes could be your ticket to getting through this downturn rather than winding up hurt by it.
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