What to do when the stock market is down?

General

The stock market is constantly changing and it’s highly fluctuating one. Every now and again, the stock market will be in a down cycle and this represents worry among investors regarding their savings or other investments. Therefore, it’s important to learn how to react when the market is down in order to minimise risks.

Long-term investors

People closer to retirement who have been investing for a long time shouldn’t worry that much for how the market fluctuates. At this point, they should have a strong portfolio with a high-risk tolerance that they’re comfortable with.

Having such a strong portfolio is also known as asset allocation and it should be your goal. So all your efforts should aim this way if you’re looking for long/term investments.

Rebalancing is also recommended and the best way to rebalance is by choosing a specific date, once a year, to take an in-depth look at your portfolio and see if it is still according to your goals, if that’s not the case, then you should rebalance.

When you rebalance it means that you’re selling high investments and then use that money to compensate those investments that are low. Rebalancing is the best way long-term investors have to deal with stock market fluctuation.

Short-term Investors

The same strategy we suggested for long-term investors will help short-term investors, the only difference is that short-term investors should check the portfolio more constantly than once a year. Some investors will use an advisor that lets them know the right time to make a rebalancing move.

This type of conservative investors often put a large portion of their portfolio in bonds – around 60% – and the rest goes to buy stocks, but it all comes down to how fast you wish your investments to grow and your risk tolerance. Another idea is to divide holdings among mutual funds, that way you diversify your portfolio market segments and get to keep the rest of your portfolio in stocks.

Unlike previous methods to handle investments when the market is down, short-term investors are riskier and they usually enjoy paying attention to how the stock market works 24/7.

They do make money by buying and selling individual stocks but it is not recommended to use retirement money for this purposes no matter how keen your market instincts are. If stock trading is your thing, then create a fund for this to avoid risking retirement money.

A good way to start a fund for this purposes is to boost your income somehow. For instance, a lot of people are claiming back substantial amounts of money they were owed from awful bank practices that are now known as the PPI scandal. If you’re looking for safe money to invest in risky trading moves, you can check here if there’s an outstanding claim for you.

When the stock market is down, active investors try different moves to test the market but almost all investors who have witnessed success in their stock market moves, are the ones who buy stocks rather than selling.

Remember that those who deal with the stock market for a living, know all kinds of shortcuts and tricks to make things work. Unless you know for sure that you have this kind of knowledge, you shouldn’t attempt to imitate this, otherwise, you may be at risk to losing important money, especially if you’re planning on using loan money for this type of trade.

The stock market will always have its highs and lows, and regardless of what type of investor you are, the best recommendation you can get is: Do not pay attention to short-term market options of investment. Strive to reach that asset allocation we mentioned earlier and you should be fine no matter what the financial headlines read.