The coronavirus pandemic has caused the stock market to be incredibly volatile. We've seen huge drops followed by big gains -- sometimes with limited reason for either.
That's scary for an investor. Seeing your portfolio tumble amid economic uncertainty can make you question whether you want to be in the market. That can lead to making bad financial moves due to panic.
It's important to fight off the fear. Remember that markets can go down fast, but they have always recovered. If you're a long-term investor, it's important to avoid making these common mistakes.
Don't sell out of fear
In the current market, it's impossible to know when another market crash is coming. The recovery has been based on the idea that the pandemic has become less of a problem.
The reality is that coronavirus has not passed -- it may be getting worse as the economy reopens. There could be new closures or an extended period during which stores and restaurants remain open but with major restrictions.
That could cause the market to tumble, and it's tempting to sell your stock and sit that out. The reality is that you should not sell due to relatively short-term market conditions. You should sell only when something changes about your investment thesis for owning the stock in the first place.
Perhaps a company you own does something you don't like during the pandemic. Maybe it laid people off callously or mistreated customers.
In that case, sell that stock and reinvest your capital in a company that fits your values. Without that sort of situation, hold on to your stocks and look for investment opportunities.
Don't wait for a bottom to buy
If the market crashes, you can, in theory, buy good stocks at a discount. That idea causes investors to wait for a crash that may never come and leaves them on the sidelines as stocks they want to purchase push higher.
Nobody knows when a crash will come or where the bottom is. Don't be afraid to buy good companies at all-time highs. Play the long game and purchase shares of businesses you believe in.
It's next to impossible to buy at the perfect price. You may think you're seeing a bottom only for the market to crash. Or you may think another drop is going to happen and then watch as the market rallies.
Don't try to time the market. It's likely not going to work, and trying to do so can cause you to miss opportunities.
Try to tune out the noise
With the entertainment and sports worlds largely on hold, the stock market has received undue attention. There's a lot of noise, and that can create fear, which can lead to bad decisions.
Try to not follow your portfolio on a day-by-day basis. You're not invested for today or tomorrow -- you're in it for the long term. It can be easy to panic when so many voices are screaming doom and gloom.
Remember, there is no new normal. There's a new right now. Markets will fall, they may even crash, but in the long term, history shows us that good companies will eventually recover.