Do Investors Love Market Volatility?
You may not realize it, but you do love volatility. Most of us don’t know it, but when the market goes up and your account balance goes up, it’s because of volatility. We all love upside volatility; it’s just the downside we all seem to focus on and gets us worked up. When the market is going up, everything seems good, we ignore the news, and we focus on our lives. When the market is going down, it often feels the World is ending, bad news is magnified, and we seem more sensitive to the outside forces.
Up until the end of May, the market did what it did. Fortunately for us, it went in an upward direction. The end of May, we saw a pullback, with most of the gains for the year wiped out.
This is a great time to practice what you know about investing. At our Investor Coaching Events, we talk about the historical movement of the market, and the rules for investing.
To refresh, the market goes up 2/3 of the time, and down 1/3 of the time. The 3 rules of investing are:
1) Own equities (stocks)
2) Diversify (own all asset classes, domestic & international)
3) Rebalance (quarterly)
Is this a bad time to invest in the market? No. It is a good time to buy into the market. Successful investors buy stocks when the price is low. Think about it. Everyday you practice this concept whether buying groceries, appliances…just about any goods or services. We always look for the best price, and generally, the cheapest price. This concept also works in investing- we buy stocks when they are low, or priced cheap, or on sale.
This is a great opportunity for investors to take advantage of low priced stocks, just like a great investor like Warren Buffet would do.
Life moves at lightning speed these days, and it’s easy to get caught up in short-term gratification. The greatest obstacle every investor faces is the instinctive tendency to do the wrong thing at the wrong time. The biggest threat to your long-term investing success is your reaction to short-term market conditions based on emotions and instincts.
Remember the three simple rules of investing 1) own equities, 2) diversify, and 3) rebalance.