It is easy to be very confident about your investments when all is going well and your investments are rising in value but it is when the market has taken a dive when your real character is revealed.
Investing needs to be done with the right mindset otherwise allowing your emotions to take over your decision making can turn out to be very costly in the long term.
The newspapers may say, “Investors have lost millions,” but the reality is they have lost nothing, well not unless they have sold their shares during a market slump.
If you have an investment strategy then the possibility of a downward trend should have been taken into account so a market downward trend will not be of a concern.
There are three ways which you can lose during a share market slide; here are are:
- Sell your shares
Selling your shares during a market slide is a guarantee that you will lose; more so if you bought your shares during the peak. The share market will have it’s ups and downs and is a long term game. If you are saving money for the short to medium term then investing in growth funds may not be the right place to have your money. On the flip side of that is a rising market can help you reach your savings goals faster. It is the catch 22 situation in that if there is an opportunity for a capital gain there is an opportunity for a capital loss.
- Change funds
Changing from growth funds to balanced or conservative during a market downturn is a way of guaranteeing a loss. In other words you are selling shares at a lower price than you bought them for. It is the issue of allowing your emotions to rule your better judgement.
- Stop Contributions to your retirement fund
This is a sure way to lose during a market slump because you are missing out on bargains in the share market. You may not lose your money by not investing during a market slump but you are losing in other ways because if you decide to just leave your money in a low interest savings account the value of your savings is being eroded by inflation.
Talk about a sure fire loser!
The share market rewards consistency and that means making contributions through good times and bad. During times when the share market is during a bear market phase you will get shares at below their market value while during a bull market cycle you will get a lot of shares at above their market value. All of this will average out over a period of time and the longer you are involved in the share market and participating the more chance you give the law of averages to work in your favour.
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Note: This article is of the opinion of the writer and may not be applicable to your personal
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