What are the reasons for stock market fall, key actions during market fall as a long term investor.
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Few reasons for Stock market fall
There can be many reasons for this market fall like Inflation, Geopolitical reason, rising interest rates, or underperforming stocks. All this is supported by metrics and data, but here the question arises, do we really need to think much if we are an investor?
An investor is a person who has a long-term horizon for investments, which should not be impacted by these short-term market trends.
Let us focus on the key action an investor can take to have a lesser impact and make profit in the long term.
Key actions for an Investor when market is falling
1.BE patient and don’t be panic
Emotion is part of human nature, and it is obvious that a person can lose patience and get panic. This panic situation will make take you toward a wrong decision. As an investor you should always have a plan. (If you are new to investing and would like to read about beginner guide to investing.) you know the time horizon, you know you have selected only good stocks which have good track record for performance. So, this drop is only for short term and as a long-term investor it should not impact you.
2. Hunt for stocks at discount
Always keep in mind the famous quote from Warren Buffet “Be fearful when others are greedy, and greedy when others are fearful.”
During market crash the companies which are fundamentally strong also shows a dip in the price. A basic understanding about indicators like moving averages can help to analyze the supply and demand zones. This helps to make buy decision this will average out the cost. Please make sure you are averaging out only on good stocks and your portfolio is properly diversified.
A concept called dollar cost averaging helps to reduce your average buying cost.
3. Stick to your investing plan
As an investor having a plan must have rules to invest is very much essential. It must be simple one to follow
- Understand your current financial status
- Determine your goals
- Which stock or instruments to buy and how much to buy (income stocks, value stocks, growth stocks etc.)
- Diversify but don’t over diversify
- At which levels you should buy or sell
4. Think for safer options like bonds
If you are a conservative investor and don’t like to take any risk. Government bonds can be one of the safe investment options. They give less returns than stocks or other ETFs but due this risky situation.
These bonds need to study carefully and taken from a reputed source to avoid any unknown risk.
5. Sector Investing
Stock market has always cyclical rotation. Historical analysis shows cyclical trends when comparing sectors. In high range market growth stock jump to and show high returns, whereas low competitive markets are on slow move and vice versa.
If you are interested and allocate fund balancing across sectors can help to get good returns.
6. Cutting losses
Sometimes it is important to cut your losses. There is a possibility that you have some lousy stocks in your portfolio which are bought considering some news or allocated due to some risky option trades. During market crash, this type of stock can drop to a level coming back to earlier level is not possible.
This option will free up some money which can be invested in taxable account and can be claimed for looses on your tax returns.
If your are new or not confident, it is always best to ask for suggestion or recommendation from a financial expert before making any key decisions.
To Conclude, always keep in mind the quote from a great investor Mr Charlie Munger –
“If you’re going to invest in stocks for the long term, or real estate, of course, there are going to be periods when there’s a lot of agony and other periods when there’s a boom. I think you just have to learn to live through them”
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