What to do during a stock market sell-off
When the stock market drops significantly, it can be difficult for investors to deal with. Keep in mind that when there is a market sell-off, research shows you should just stay put with your investments. Here’s what to know about stock market sell-offs and a few ideas of what you can do.
What is a Market Sell-Off?
A market sell-off is the rapid selling of securities — like stocks, bonds, or commodities — that lead to a decline in price. As USA Today notes, a sell-off can involve an individual stock, futures, or even the market as a whole.
Plan Ahead for Market Downturn
Like many financial decisions, planning ahead gives you an outline of what to do in uncertain times. To prevent you from reacting to a market downturn based on emotion, plan your strategy beforehand. Think about what you’d do if the stock or bond market dropped by 10 percent. Many believe this is a good time to buy, but it’s not easy to do when things don’t look so good. Talk to a financial professional to help you set up a plan that is suitable for your situation.
Dollar Cost Averaging
One way to deal with a stock market sell-off is by dollar cost averaging. With this strategy, you dedicate the same amount of money toward buying an asset on a regular basis regardless of its price. That means when that investment is trading at a lower price, you’ll end up with more shares. For example, an automatic $200 buy order of XYZ stock in your brokerage account every month. If XYZ’s share price is $50, your $200 will give you 4 shares. Some months that $200 will buy more shares some months less, depending upon the price per share. Dollar-cost averaging is a way to reduce the average cost over time.
Focus on the Long Term
Remember that markets go up and markets go down. Keep the long-term in mind when a sell-off happens. You want to stay the course to get the most bang for your buck.
Content by Savvy Money