The COVID-19 outbreak has sent the stock market on an extremely wild ride, and millions of Americans are seeing massive losses on paper in their investment and retirement portfolios. But 57% of U.S. adults worry that the market hasn't yet bottomed out, according to a new study from Allianz Life. And that very fear of the unknown could be driving some people to make very poor financial decisions.
When panic leads to losses
It's unquestionably disheartening to see your portfolio balance take a massive dive because of the ongoing crisis. But one thing you really shouldn't focus on is how bad things could get.
Why? It's simple: If you worry too much about further losses, you could reach the point where you start to unload your stocks out of fear that they'll keep plunging. But in doing so, you'll lock in your existing losses, thereby guaranteeing a financial hit.
If you're in your 20s, 30s, 40s, or even 50s, you may not have plans to tap your retirement savings for a relatively long time. If you leave that money alone now, you'll give your portfolio a chance to recover. That's likely to happen once the market picks back up.
Even if you're hoping to retire within a few years, there's still a good chance your portfolio will regain its value if you resist the urge to make changes while it's down. And if you don't need to liquidate your investments in a traditional brokerage account right away, don't.
Even if the situation gets worse and your balance declines further, it won't matter until the day comes when you need to access that money. So for now, ignore the number you see on the screen -- and stop obsessing over whether it will drop even more.
Don't try to time the market
Another problem with focusing on the stock market bottoming out is that it could lead you to miss out on some key buying opportunities right now. Many investors try to time the market and fail repeatedly. We don't know how low stock values will drop, but what we do know is that they're down right now.
If you have cash to spare and you use it to buy quality stocks on the cheap, you stand to make money even if their values decline from where they are today. Or to put it another way, if you have the ability to invest, don't ask yourself whether stocks values will get lower; ask yourself whether they're likely to come up from where they are today.
Has the stock market reached its lowest point as far as the COVID-19 crisis goes? We don't know -- without a crystal ball, it's impossible to predict that. But we do know that now's a good time to invest if you're financially capable of doing so. And the stock market is also likely to recoup the losses it's seen in recent weeks. Remembering these things will help you avoid bad decisions you may later regret.