Not Panicking When the Stock Market Falls

In order to produce the podcast and keep content up free for you, I work with partners so this post may contain affiliate links. Please read my full disclosure for more info.

Want an easy way to reduce your stress levels without having to lift a finger?

Avoid checking your 401(k) balance right now.

Seriously, have you looked at it? If so, then your stomach may be following the roller-coaster pattern on the graph below.

Stressing Out and Panicking Over Your Investments

You or your spouse may be worried about whether or not your investments are going to be okay.

If there's one takeaway I've gotten from watching the markets during this coronavirus, it's that it's impossible to predict what's going to happen with the market day to day.

I've seen back to back stories about record unemployment and the market surging up.

The good news (sort if you kind of squint) is that we're not in completely uncharted waters.

Since this site started over years ago, there have been fluctuations in the market.

Some big and some smaller, affecting sectors.

And the crazy thing is how quickly (and varied) opinions, explanations, and analyses were given.

For example, back when BP's stock plunged after the Gulf Spill, some analysts were wondering if the company would go bankrupt, while others saw it as a buying opportunity.

We can look back and see how things played out, but in the middle of it, it was easy to be confused and overwhelmed.

Chances are, you're feeling a bit anxious right now.

So how do you know if you need to buy or sell when the market falls?

How to Invest in a Volatile Market

First off, let's start with the takeaway I mentioned – it's impossible to predict what's going to happen on a micro level.

On a day to day basis, trying to time the market is most likely going to lose your money.

As you can see in the chart above, while the stock market is increasing over the long term, the are plenty of times where it's volatile.

Ben Casselman wrote recently about why selling during these times is a bad idea.

He does a fantastic job of laying out how rebounds have happened and will more than likely continue to happen (though no guarantees because no one can predict the market).

He also gave an  noted:

Imagine two people who each invested $1,000 in the S&P 500 at the beginning of 1980. The first one buys once and never sells. The second one is slightly more cautious: He sells any time the market loses 5 percent in a week, and buys back in once it rebounds 3 percent from wherever it bottoms out.

At the end of last week, the first investor’s holdings would be worth $18,635. The second investor would have just $10,613. (For simplicity’s sake, I’m ignoring dividends, fees, taxes and other factors.)

Which investor do you want to be?

Ignoring the Noise

Finding the meaningful signals can be extremely difficult with all the noise out there. Media in all its forms can make us feel like we have to do SOMETHING now.

I wrote awhile back there are some ways you can cut back on the noise:

• Remind yourself of your plan. Have your reasons why you chose this accessible so you can refer to it when you’re tempted to chase a ‘hot tip’.
• Check the data yourself. News pieces tend to focus on the narrative or story, but that doesn’t give the whole picture.
• Be selective with your sources. Choose your investing sources widely and ask yourself,  what is the credibility of this site or show? What is their goal  and how do they make money?

Focus on Fundamentals, Stick with Your Plan

As simple as it may be tell you to continue investing, I know it can be difficult.

Though I've seen how disastrous emotional investing decisions can be to a portfolio, even I can be tugged into thinking that my money may be safer elsewhere.

Since we're prone to having bad investing habits, one of the best defense (and easiest to execute) is to have your plan set up and your contributions automated.

If you're already investing, check to see if you can go ahead and get your contributions automated if you have't already.

If you haven't started investing, go ahead now. Yes, now. There are plenty of options out there. Personally we use Vanguard and Betterment for our IRAs.

Setting up our accounts was easy and the service has been wonderful with both companies.

Vanguard and Betterment offer you a way to invest effectively and efficiently with index funds and ETFs.

Once you’re set with your contributions, you can fine tune it by having a schedule to review and adjust your portfolio’s holding so you maintain your plan.

Your Thoughts on Investing

I'd love to hear from you – how are you doing with the market news? How do you ignore the noise? What tools help you focus on your long term goals?

This post was originally published in August 2015. It has been updated in May 2020.