For most investors, investing comes with a strong emotional attachment. If stocks go up, it is easy to feel elated. If stocks go down, it is even easier to feel devastated. It’s only through experience in the market that we can learn how unbeneficial it is to be emotionally invested in our investments.
Because when investments go down, it doesn’t automatically equal a bad result. It’s a bad result if you need the money straight away to meet an obligation, but if you don’t, all it means is you may now have the opportunity to purchase more of the asset at a lower price.
This seems counter-intuitive we know, but it follows the classic saying of ‘buy low, sell high’.
At the end of the day, if you are investing, you are accepting that what you are buying is a fair price. If your investments temporarily go down, then you shouldn’t necessarily be afraid to be buying in these moments. This very straightforward investment strategy is called ‘buying the dip’.
If you are emotionally investing, this strategy may not make sense. That’s why being in control of your emotions during your investment career is so important. When the roller coaster happens – as it will many times in your investment career – consider taking the opportunity to buy more if it makes sense for your situation. If you believe the world will continue to produce value, and continue to earn a profit, then ultimately the stock market should go up again. The primary risk of course, is that it takes longer than expected for the market to recover, and you are forced to sell before that time comes.
One thing you learn in the long term is that crises are never as bad as they are predicted to be at the time – but also that good times are never as good as they are predicted to be.
If your only response to a falling market is ‘sell sell sell’, then perhaps you shouldn’t be in the market. Again, we know this is counter-intuitive, but even in a falling market your investment goals should be to control your emotions and stick to your strategy.
Raiz’s automated tools like recurring investments are so powerful because they can take away the emotion that usually comes with deciding to make an investment, and at the same time allow you to dollar cost average into the market.
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