The year thus far has been quite a roller coaster ride for investors. Tremendous stock market volatility and economic uncertainty have pushed my brokerage account down 14% over the last year. And given the lingering economic uncertainty and temperamental movements of the market lately, there's a good chance it could sink further.
While no one likes to see their investment portfolio go down (myself included), here are three reasons I'm not particularly worried -- and I don't think you should be, either.
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1. I'm investing for the long term
One of The Motley Fool's core principles is to invest in high-quality companies and hold them for at least 5 to 10 years. This long-term approach to investing can lead to higher blended returns over time, but it also means you need to stick through tough times of volatility, recessions, and even bear markets.
While my brokerage account is down 14% right now, I have to consider the bigger picture of its long-term performance. And that view yields a much rosier picture. Over the past five years, my portfolio is up 25%, a huge win despite today's losses. It's that long-term outlook coupled with a little bit of grit and patience that can help you overcome the headwinds of today.
2. I'm managing losses waiting for a likely recovery
Whether it's the broader market or a singular stock, it's normal to have the urge to sell when the market is down. But we have to remind ourselves of what we're investing for: the long term. You only incur losses when you sell. The stock market will eventually recover and bring many of the stocks that are down today with it. By patiently waiting until the market recovers, you very well might not have to suffer a loss at all.
However, I'm aware that not every stock can survive a downturn or return to previous levels. This is why I'm taking a strategic approach to losses and only selling stocks if I believe the company's business model is no longer feasible. Poor management, excessive debt, changes in legislation, or big long-term consumer trends that render it obsolete are the only factors that drive my decision to sell.
Temporary hurdles -- like diminished earnings, lower values, or decreased revenue alone -- aren't enough reason to sell. Having a holistic picture of a company, its financial standing, and its position in the greater market over the long haul can help you determine which stocks to hold and which to let go of.
With that being said, I try to avoid selling in a market dip at all costs. Patience even in the short term can lead to less of a loss.
Image source: Getty Images.
3. I'm not relying on my portfolio for cash today
My brokerage account is for my future self. Tapping into it today if times get tough is not an option. Instead, I have separate savings that alleviate any reliance on the cash value of my portfolio right now. And it's a model I highly suggest you adopt if you plan to invest or you are already invested. It ensures a portfolio can do what it does best over the long haul: grow.
One thing I've done to reduce the concern over my portfolio's performance is to check my brokerage account only once a week and minimize what I read about market predictions. I definitely stay up-to-date on my investments, but there is no need to check their performance every day.
If you are currently relying on or living off your portfolio for a portion of your income, know that you're not alone. Remember that it could get worse temporarily, but it eventually will get better. Use this time to reload your portfolio with high-quality stocks that offer some resilience to the market turbulence. I've added extensively to my investment portfolio over the past few months and don't plan to stop anytime soon.
