4 reasons I don’t worry when my investment account goes down
The stock market has been on a wild ride lately, and my investment portfolio has seen significant ups and downs.
On down days, logging in and seeing that my balance has gone down by tens of thousands of dollars isn’t much fun. But I never worry, even when things look bleak, for four main reasons.
1. I am diverse
Investing is always risky, but there are ways to reduce the potential for losses. Diversification is one of the best and most important strategies.
If you invest all of your money in a business, or even in a particular type of business, you are taking a much greater risk, because if the business or industry underperforms, you will hurt. But if you spread your money, there is a much better chance that some of your investments will pay off.
I chose to diversify easily by purchasing multiple index funds that give me exposure to large, medium and small companies. Although I have a few individual stocks in my portfolio, the bulk of my investments are in these funds, and I have been able to build a mix of investments with them which I am convinced limits the risks I take. .
2. I have confidence in my investment strategy
When selecting investments, I research companies (or funds) carefully and pay attention to how each fits into my overall portfolio. I don’t invest in something that I don’t understand, and I never invest with the expectation of short-term profit.
Since I know these are sound investment principles, I don’t care if my investments have bad days as I am confident that I have bought stocks and funds that will work well for me over the years. time. It helps me avoid reacting out of fear when I see my balance go down.
3. I understand the history of the market and that it almost always bounces back
Although stock market crashes can be nasty, I’ve been through a lot and know they are part of a natural cycle. Since I understand that downturns inevitably are followed by recoveries, I know that if I just sit and wait, the “losses” I have suffered on paper will often turn into gains.
Of course, that doesn’t mean that I will never sell investments at a loss, but since most of my money is in index funds that track large segments of the market, these investments are very unlikely to ever end. not recovering from a slowdown. .
And when it comes to the stocks I own in individual companies, I also only buy them if I’m sure they have a strong competitive advantage and the type of strong management team that can help them get through a crisis. It gives me confidence that they will also come back stronger after the economic downturns.
4. I won’t have to depend on money for a long time
Finally, the main reason I don’t worry if I suffer losses in my investment accounts is because I know that I won’t need to sell my assets for a long time. I only invest money that I won’t need for at least five years, and most of my investment portfolio consists of retirement accounts that I won’t touch for decades.
When you have a short timeframe to invest, you can’t always afford to wait for dips, and you may be forced to sell at a loss just because you need the money. Because I make sure I never find myself in this position, I don’t have to worry even if the recovery from a fall is slower than I would have hoped.
By following these solid principles and making sure that I don’t make reckless investment choices, I have the confidence to see my portfolio go down and do nothing but wait for better days.