Zach’s 3 Best Tips for Surviving Big Stock Market Swings
“Zach! I can’t stand all these wild moves in the stock market! One day my retirement account is up big and the next it’s down even bigger. Help!”
I’ve gotten plenty of reader feedback like this over the last few weeks. And I understand where these readers are coming from.
Many stocks have fallen in to a scary pattern. They’re up big for a day or two, then suddenly plummet the next.
Watching your portfolio swing up and down like that can be overwhelming. It might even scare you into making bad decisions, like selling too soon or skipping chances to buy bargain-priced stocks.
So today, I want to give you my best tips for riding out market turbulence…
Tip #1: Don’t Hold the Handlebars Too Tight
When I was working for a hedge fund, we had a phrase for someone who was paying too much attention to every swing in the market. We said they were “holding the handlebars too tight.”
If you’re riding a bike at a moderate speed, you’re probably pretty relaxed. You can see what’s coming and don’t have to be ready to react in an instant.
But if you’re riding really fast…downhill… on wet pavement, your instinct might be to grip the handlebars as tight as you can. It makes you feel like you have more control over the bike… and have a better chance of staying on if you hit a bump or curb.
Experienced bikers will tell you it’s actuall y the wrong thing to do.1
A lighter grip lets you adjust to changing conditions much more naturally, giving you a smoother, safer ride through rough terrain.
And if things get too bumpy, it might be time to put the brakes on, reduce your speed and consider taking a safer route.
The same thinking applies to the markets, too!
You shouldn’t need to adjust your portfolio for every dip and spike. If you’re glued to your broker’s website every waking hour, hovering over the trade button as the numbers tick up and down, you’re gripping the handlebars too tightly.
And if you think you need that kind of constant vigilance to protect your retirement funds, it probably means you’re being a little too aggressive with your capital.
A properly diversified portfolio should be able to weather these ups and downs. That doesn’t mean you’ll never see losses… or even that you should never sell a position.
But a downturn also shouldn’t threaten to wipe you out completely, either. And an upswing is no excuse to rashly buy a stock because it’s price is rising.
The solution is to reduce your exposure to risky positions and buy investments with a reputation for safety and stability.
Above all else, don’t trade too hastily. Hold the handlebars a little more loosely so you can think clearly and make rational decisions.
Tip #2: Turn It Off!
Logging off your broker’s website when markets are swinging can help you avoid the temptation to take unnecessary action.
You should also avoid news channels and financial websites.
Remember, the media thrives on eyeballs… and nothing draws a crowd better than lurid headlines and dire predictions.
Expect a running tally of the ups and downs — with every change in a major index becoming breaking news. Special guests will tell you why it’s time to panic… or chide you for missing out on big upswings.
Before long, you’ll find yourself questioning your decision to sit still.
The easy way to avoid that is to avoid the temptation at all. Turn on some sports… go for a walk… do whatever it takes to make sure you’re not swayed by some talking head.
Again, this doesn’t mean you should do nothing with your portfolio.
When markets are falling, it may make sense to sell positions to prevent further losses. You could also go bargain-hunting, buying great stocks at discounted prices.
Likewise, upswings can be a good time to take profits… maybe even latch on to a rising stock with a bright future.
But these trades should never be knee-jerk reactions to changing market conditions.
You bought your stocks for a reason. Don’t sell them until that reason no longer applies.
Have a reason to add new stocks to your portfolio, too — and not because of the price.
Plan your trade and trade your plan.
Because it’s not nearly as bad as you might think.
Tip #3: Look at the Big Picture
Markets advance, pull back and advance again. It’s just what happens.
The only real difference right now is that these back-and-forth swings seem much more dramatic.
Eventually, though, things will even out. They always have in the past… and there’s no reason to think this time will be any different.
As the old saying goes, this too shall pass.
So it doesn’t matter what the stock market does today — whether it’s going up or down.
What really matters is the long run. Where will the markets — and your positions — be when you need the money?
If you have time for your investments to recover, there’s no reason to get caught up in a panic. Selling great stocks at fire-sale prices is no way to reach your financial goals.
And as I said earlier, if you think a downswing could ruin your retirement, you might be investing too aggressively.
Keep the long run in mind during an upswing, too. Selling when prices are rising may make sense — but it could also mean missing out on even bigger gains later.
Instead, use downswings to look for bargains… and take advantage of upswings to unload stocks that you no longer believe in.
With that mindset, the ups and downs can be seen as gifts. And you should take advantage of them.
Now let’s get to the 5 stories to get you caught up with today’s markets…
5 Must Knows for Monday, September 23rd
WeWork CEO on Hot Seat — Adam Neumann, CEO of WeWork, is reportedly under pressure from a group of directors to step down from his position at the company he founded. The pressure comes after a tumultuous week where WeWork delayed it’s highly anticipated IPO — due to highly questionable corporate governance practices — and Neumann’s eccentric leadership style and drug use came to light. This is a story we’ll continue to follow, and a company we’ll continue steering you away from.
Earnings on Deck — On Tuesday, Nike, Nio, AutoZone, CarMax, Cintas, Blackberry and Jabil report earnings. On Wednesday, KB Home and Pier 1 Imports report earnings. And on Thursday, Rite Aid, Micron, Accenture, Conagra, Vail Resorts and Factset report earnings.
Iran Frees British Tanker — After a two-month standoff with the U.K., Iran announced Monday that the seized British tanker — Stena Impero — is free to leave. The announcement comes before this week’s U.N. Summit and after world leaders began raising pressure against Iran over attacks on rival Saudi Arabia.
Iranian forces originally commandeered the vessel on accusations that the ship broke international maritime laws in the region. However, more suspiciously, this happened just two weeks after U.K forces seized an Iranian tanker. Draw your own conclusions
Economic Reports on Deck — New home sales figures are due out Wednesday, and durable-goods orders are due out on Friday. But the economic report I’ll most be watching is U.S. household spending which gets released on Friday. That’s because the U.S. consumer is the main driver behind today’s economy, and I don’t expect our stock market to turn downward until their spending declines.
The Latest on Boeing’s 737 MAX — Indonesian investigators have ruled that design and oversight lapses played a vital role in Lion Air’s 737 MAX crash in October, in addition to pilot and maintenance mistakes. It’s important to note, however, that the official report isn’t scheduled to be released until November, and that these findings are subject to change. Boeing’s stock continues to underperform.
Have a great week!
Here’s to growing and protecting your wealth!