As someone who’s been investing for many years, I’m fully aware that stock market downturns are completely normal. But that doesn’t make them an easy thing to cope with.
At one point earlier this year, my portfolio was down around 30%. Clearly, that’s a huge decline.
At this point, I’m looking at more like a 20% drop, since the market briefly rallied (to a point) over the summer. But that’s still not a number I’m happy with.
Image source: Getty Images.
But despite the hit my portfolio has taken, I’m not losing sleep over the fact that it’s down — a lot. Here’s why.
It’s all about the big picture
If I were a year or two away from retirement, I’d be panicking big time over the state of my portfolio (though to be fair, I also wouldn’t have the same investing strategy). But because I’m decades away from that milestone, the fact that my portfolio is down doesn’t have to be a huge source of concern.
The reality is that the stock market has a long history of recovering from downturns. So if I stay the course, there’s a good chance that by this time next year, or the year after that, my portfolio will regain the value it’s lost in the course of 2022.
In fact, one thing I always like to remind myself is that losses on screen are merely hypothetical. As long as I don’t sell any stocks in the near term, I won’t lose money.
Along these lines, stock prices can fluctuate substantially from week to week and month to month. My goal as an investor is to load my portfolio with quality stocks that end up gaining value over time. As such, I don’t really care if shares I bought for $500 apiece last year are now only worth $400. As long as they end up being worth more than $500 by the time I want to cash them out in retirement, I should be golden.
Think long-term
Some people invest money in the hopes of striking it rich in the stock market. But that’s never been my approach. Instead, I’ve always taken a long-term approach to building a portfolio, and I make a point to invest in great businesses and stick with them even during periods when the market on a whole is volatile.
Because of this, I’m able to coast through this downturn without panicking too much. That doesn’t mean seeing losses in my portfolio isn’t upsetting. It’s human nature to let a lower number on screen get you down.
But there’s a difference between being bummed and being scared. Because the latter doesn’t apply, I’m not about to start selling off investments in a panic, thereby locking in the losses in my portfolio that are currently hypothetical.
If you’re losing precious sleep over the state of your portfolio, and you’re many years away from having to tap it, try to stress less. And no matter what you do, don’t make the mistake of selling off stocks when they’re down in an attempt to minimize your losses. If anything, you might end up taking losses for no good reason.
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