Despite many advancements made in trading since the 1940s, investors tend to overreact and may panic whenever the equity market moves down. Most investors are so fearful of another stock market crash, that they do everything humanly possible to prevent it.
What we would like to remind those investors is that making rash judgments and panicking is likely to affect market sentiment and that may directly affect the value of your portfolio.
Over the last few days, the markets globally are experiencing what economists call a market correction – temporary price declines of less than 10 percent. This market activity is predictably interrupting an uptrend in the market; while a market crash is when a stock index loses more than 10 percent over the course of a day or two.
See the difference?
A market correction is necessary to a functioning stock market as air is for us to live. Remember the Dow Jones industrial average increased by approximately 40 percent since the 2016 presidential elections and while the earnings and tax break support the increase. As a result of robust growth taking place in a relatively short period, a slight decrease in equities occurred: hence a market correction.
So rather than scream, the sky is falling also known as the market has crashed, let us look at the facts:
The Dow Jones declined by less than 5 percent compared to the Great Depression in 1929, where the Dow plunged by first day 13 percent and then 12 percent on the second day.
Why are markets down?
As mentioned before, markets have gone up too far too fast, and shares were ripe for a fall. But more importantly, it is because the bull market has been due to the willingness of central banks to supply copious amounts of money to the markets at ultra-low interest rates.
This correction should encourage all investors to utilise hedging and the necessity of taking gains instead of holding out and getting greedy.
Diversifying your portfolio with a combination of blue-chip companies and some aggressive stock picks is not dull but smart.
The fact about investing and we have advised many clients similarly, is that many times is panic is just as influential as economic factors, be careful of joining the crowd and look to facts, otherwise you may end up absorbing an unnecessary loss.
If you want to start investing with SSL but don’t have the time to monitor the market or to conduct the trades yourself then you can choose one of SSL’s managed Financial Planning products. We offer a variety of products for every type of investor and if you are interested in managing online trades yourself and having complete control over your investment portfolio then you can try SSL’s Brokerage account.