The past five months have been loaded with turbulence from an investing standpoint. And late last week, the S&P 500 index finally plunged into bear market territory after weeks of steady declines.
It’s enough to make even the most seasoned, level-headed investor get rattled. But if you want to get through this rocky period, it pays to take some advice from investing giant Warren Buffett.
Just walk away
The current stock market slump isn’t the first of its nature investors have had to endure. The market has been through numerous periods of steep declines, and while many of today’s investors have experienced a bear market before, that doesn’t necessarily make it easier to cope with.
But if you want to increase your chances of getting through this bear market unscathed, Warren Buffett says your best bet is to simply walk away. Specifically, he advises investors not to watch the market too closely during periods like this.
Buffett insists that investors who load up on quality stocks and hold them for many years will come out ahead in the long run. So even though things might seem bleak right now, it’s important to remember that in the grand scheme of a 30-, 40-, or 50-year investing career, today’s bear market could end up being a non-event.
In fact, the best thing to do during a bear market is avoiding selling off stocks when their value is down. If you do, you’ll only guarantee yourself losses. If you leave your portfolio alone, there’s a strong chance it will recover in time.
But the more you check up on your portfolio, the more rattled you might get — and the more likely you might be to make a rash decision that causes you to take needless losses. That’s why it pays to heed Buffett’s advice and simply walk away.
Seize the opportunity
If you can’t stomach the idea of seeing major losses in your portfolio during a stock market downturn, don’t check your portfolio. It’s that simple.
That said, if you happen to be sitting on a pile of cash you don’t need for near-term bills or emergencies, it could pay to take advantage of current market conditions by purchasing stocks on the relative cheap. If you already own a number of companies whose long-term prospects you believe in, those are the stocks to keep buying during a bear market.
Another option? Load up on broad market index funds. That way, you’ll get instant diversification and you won’t have to put as much thought into your investing decisions.
Warren Buffett has long insisted that broad market index funds are a great choice for the everyday investor who’s willing to sit back and let a portfolio gain value over time. So loading up on S&P 500 index funds is a good bet right about now.
It’s natural to worry when stock values drop significantly. But if your stress level is currently through the roof, do yourself a favor and just walk away.
Checking your portfolio daily when it’s down is only apt to cause you undue anguish. If you need a way to channel your energy, take up a sport that will allow you to blow off steam, or put on your running shoes and hit a local trail. But don’t spend night after night checking on your portfolio. If you don’t walk away, you might end up making a fear-driven decision that turns those on-screen losses into actual ones.
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