The past week was a wild one for stocks, as news of the omicron variant and disappointing jobs growth send investment values on a turbulent road. Now the reality is that the stock market can be volatile outside a pandemic. But given these strange times, investors need really need to brace for continued rockiness.
When I was new to investing, stock market volatility was enough to keep me up at night. But these days, I really don't sweat it. Here's why.
1. I know it's likely just temporary
The stock market has seen its share of sell-offs, corrections, and other near-term blips. But ultimately, it has a strong history of recovering.
That's what helps keep me calm during periods of volatility. Having been an investor for many years, I now know that these things are normal, and that if I were to lose my cool every time my portfolio value drops, I'd subject myself to a lot of needless anxiety.
2. I'm investing for the long haul
If I were planning to cash out my portfolio next month, I'd be sweating it out over this recent bout of volatility. But that's not my plan.
I'm nowhere close to being ready to retire, and I don't plan to do anything to my portfolio in the near term other than perhaps add to it. And that knowledge helps keep me calm.
3. I don't need to tap my portfolio in a pinch
I'm what you might call overly conservative on the emergency savings front. For most people, three to six months' worth of living expenses is enough for a solid emergency fund. But I prefer to keep more like a year's worth of living costs in the bank. Part of the reason is that I'm self-employed and therefore not eligible for unemployment benefits or paid medical leave should the need arise. But also, having a more robust emergency fund helps me invest more confidently.
In fact, a big reason stock market downturns don't bug me is that I don't rely on my portfolio as a near-term cash source. Rather, I rely on the money I have socked away in the bank. That money, to be clear, earns practically no interest. But the upside is that it's there for me when I need it and prevents scenarios where I might have to cash out investments at a loss.
Stay the course
One of the most important moves you can make as an investor when the stock market gets rocky is to leave your portfolio alone -- unless, of course, you're adding to it. In fact, stock market downturns are a great time to build your portfolio because you can buy stocks on the relative cheap.
But even if you don't capitalize on that opportunity, you should make every effort to leave your investments untouched when volatility ensues and stock values plummet. Doing so will help you stay on track as far as your long-term goals are concerned, all the while helping you avoid needless losses that only hurt you financially.