It's a challenging time to be an investor right now. The market has been volatile over the last couple of months, and with so much uncertainty in the world, there's a chance we could see even more turbulence in the future.
While nobody can say for certain how the market will perform over the next few weeks or months, that doesn't mean you can't prepare. With the right strategy, you can keep your money as safe as possible -- and that starts with avoiding three of the most common investing mistakes.
Image source: Getty Images.
Mistake No. 1: Pulling your money out of the market
The most logical response to potential volatility may be to withdraw your money from the market. Stock prices could continue falling, so it makes sense to get out now.
However, that can sometimes be a risky move. The stock market is unpredictable, and there are no guarantees that prices will plummet -- even amid global uncertainty. In the early stages of the COVID-19 pandemic, for example, the stock market saw a dramatic decline, only to rebound within weeks. It then went on to smash records over the next two years.
That doesn't necessarily mean we'll see a similar scenario now. But because nobody can predict how the market will perform, it can be risky to pull your money out. If you sell all your investments and the market surges, you could miss out on substantial gains.
Mistake No. 2: Stopping investing altogether
Even if you don't pull your money out of the market, it can be tempting to press pause on investing until prices start to rebound. However, that means you'll be missing out on the chance to stock up on quality investments for a fraction of the price.
Stock prices are lower during downturns, and even the strongest investments are more affordable. If you only invest when the market is thriving and prices are higher, you could end up spending a lot more over the long run than if you'd also invested during downturns.
That said, consider your overall financial situation before deciding whether to continue investing. If you're struggling to pay the bills, don't have an emergency fund, or are saddled with high-interest debt, for example, it may be best to focus on these priorities before investing.
Mistake No. 3: Investing in the wrong places
Not all stocks are created equal, and investing in the wrong places could be a costly mistake. While the stock market has a long history of recovering from downturns, not all individual stocks will bounce back from volatility.
While it's impossible to say exactly how a certain stock will perform, the investments that have the best chances of surviving a downturn are the ones with the strongest underlying business fundamentals.
Strong companies make for strong stocks. If the business itself is healthy, the stock is more likely to rebound from market slumps. On the other hand, if the company has shaky fundamentals or isn't in the best place financially, it may struggle during periods of volatility.
It can be intimidating to invest in the stock market right now, especially when nobody knows what the future holds. However, by taking a few steps to prepare and avoiding these common mistakes, you can protect your investments as much as possible.
