During any market crisis, it’s not just important to have a strategy when you’re investing in exchange traded funds (ETFs), stocks or anything else. The best strategy in the world won’t matter if you can’t stick to it.
The abruptness and severity of the crisis that the world just went through in 2008 tested the emotional and financial reserves of investors, explains Mark Hulbert for The New York Times. When the market is in crisis mode, the best way to deal with it is to either hang in there or get out, but your decision needs to be firm and preferably, it should be made before you get in.
In the most recent crisis the country went through, the investors who were most unscathed were those who clung to their strategy, no matter what it was. Hulbert points to buy-and-hold investing as an example: many investors use the strategy, but when faced with some of the scariest markets in decades, they found themselves selling at the bottom in a panic.
It all leads to an important point: once you have a strategy, you need to have the fortitude to stick to it. If you can’t, find another one.
Ben Popken for The Consumerist reports that there are two ways to not panic in a market crisis:
- Ask yourself if what you are about to do (buy or sell) is in line with your long-term investment goals.
- Realize that this (market meltdowns) has happened before, and we have survived. The markets will come back again.
We utilize a 200-day moving average strategy, which is a simple one that’s easy to employ. But whatever strategy you choose, it’s important that it work for you. A strategy that doesn’t work for you will never work.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.