Market Volatility: Check Your Emotions At the Door
A sharp tumble in stocks on Monday, February 5, 2018, might have some investors feeling twitchy, but it is important for investors to keep their long-term investment goals in mind, according to the Financial Industry Regulatory Authority's head of Investor Education.
"There are always ups and
downs in the market—and the
steeper the rise or the fall,
the more likely some of us
might be to derail a long term
strategy with a snap decision."
"There are always ups and downs in the market—and the steeper the rise or the fall, the more likely some of us might be to derail a long-term strategy with a snap decision," said Gerri Walsh, FINRA's Senior Vice President of Investor Education. "Especially when markets fall sharply, we tend to react on impulse."
The Dow Jones Industrial Average dropped 1,175 points on Monday, or 4.6 percent, to 24,345.75. The drop, which came on the heels of a 2.5 percent decline on Friday, was the largest ever in terms of points lost. The S&P 500 lost 113.19 points on Monday, or 4.10 percent, to 2,648.94.
Concern over inflation and an increase in bond yields was widely reported as a key driver of the slump.
Big swings like those seen Monday might cause your stomach to churn if you log into your trading or investment account. But before you make any decisions regarding your investments, it's important that you keep your emotions in check and understand what is going on, according to Walsh.
"Talk to your investment professional," said Walsh. "And focus on your long-term goals. How does any action you choose to take in the moment impact your portfolio in the future?"
In an ideal world, everyone would buy assets when they're cheapest and sell them when they're most expensive. But choppy markets can derail even the most disciplined investor's game plan when emotions come into play. That's why it is important to keep a level head and to keep your overall investment strategy and investment timeframe in mind.
"Whether any given day's drop reflects a market correction, an anomaly or the beginning of a bear market can take time to figure out—and isn't within our control," Walsh said. "So control what you can. Staying diversified, rebalancing to stay aligned with your goals and taking a long-term view are the best ways to weather any financial storm."