During times of increased economic volatility it’s only natural to be concerned with day-day market fluctuations and the corresponding value of your hard earned savings when things take a dip. The recent stock market corrections across the world were caused by fears of increased bad debt levels within the US Sub Prime lending arena. However, it is all too easy to become fixated by these short-term market movements.
So, what can you do?
Well, it may be best to keep focused on the long-term as opposed to the short, after all your existing investments were taken out with this in mind. Most investment professionals agree that you are more likely to benefit from resisting the temptation to make rash changes to your long-term investment portfolio due to the short-term stock market performance.
Few would dispute the fact that over the long term equities outperform deposits but trying to sell existing investments to avoid future losses and investing again when markets are at a low point is very difficult if not impossible to do and reap any benefit. This is known as ‘Market Timing’ and it must be remembered that markets rise just as rapidly as they fall so you can get this timing very wrong. This may not only lead to effectively locking in losses by selling at the bottom of the market but also it is all too easy to miss out on the gains by having to buy in a rising market and whilst ‘market timing’ is great in theory it seldom works in practice.
The current market conditions may also provide good investment opportunities; it is now over three weeks since the most recent correction and with markets beginning to settle at around 10% below previous levels, scope may now exist for investors to take advantage of attractive valuations. Even for those not willing to invest lumps sums now, by investing regularly volatile markets can work in your favour. By viewing short-term volatility as just part of normal stock market performance, sitting tight and enjoying the ride could prove to be the best course of action.
Remember it is time, and not timing, that is the key to investing.
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