Tomorrow's Another Day
Trading on Wall Street
Panic is part of life. Investors who leave decisions to their investment advisers are the smartest investors, because the stock market is not for an amateur to play with. This is why most corporations have portfolios, as do most people wealthy enough to be investors.
We have only to fear fear itself, said F.D.R. The thing most feared is a sudden plunge in share values across the board. This is caused by excessive selling of shares in order to liquidate them into cash that can be used elsewhere.
Who is a typical investor? Owning an investment portfolio is like putting money aside until it's needed. It's a little like a savings account.
How and where you spend your money is crucial to your psychological well-being. When people take money out of their portfolios, they do so because they need to spend some of their wealth, otherwise they would leave the money in, allowing it to continue to gain value, and allowing the investment managers to purchase even more securities with the earnings.
What motivates spending is the key to many a sales person's success story. Something has to happen to make people want to use money other than for buying securities. If money is taken out of the stock market, it starts to collapse like a basketball losing air. We say it plunges because we envision a chart with a downward sloping line representing total value invested in the market.
A news story can cause a plunge, such as US defaulting on its debt payments. Other factors that lead investors to want to buy shares on other nation's stock markets also could cause a plunge in US stocks.
What should investors do about a plunge? The ironic thing is that a plunge is nothing more than an opportunity to make money, because what goes down must come up. Buying low and selling high is just as simple as that, even in the case of a winner like Google stock which might be only relatively low temporarily.
There are those who utterly despise government itself. Most of us have very little say in what goes on in government to cause people to start to take their money out of the uninsured stock market. But we do know for a fact that the best time to buy stocks is when they are being sold cheaply.
We all hope for a better upturn in our economy, yet this would make it difficult for new investment to enter the stock market because prices would reach a high level and stay there.
The market is best understood as a living thing that has to sleep sometimes. Stock markets plunge because investments move up and down like a living and breathing organism. The plunge happens because investors need a rest. When the market goes down far enough, like when we exhale, then it will start to pick up and rise again (inhale more funds).
Markets plunge because they must. It's normal and natural. But the investor must also follow suit with normal and natural reactions to the down market, and not fly off the handle and do something emotionally driven.
Bear in mind your risk tolerance. Allocate your assets properly. In a long-term investment portfolio, a downturn will allow obvious advantages to buy carefully chosen shares. While younger investors can afford to take more risks as a rule, the investor approaching retirement should stick to what's safe.
In a plunge, you can find excellent opportunities to purchase shares in some of the larger, more stable corporations. They will react to the general panic over the economy and sometimes sell stock for less than the real value according to their liquid assets.
If stocks aren't the answer, then bonds may be. Always take into account inflation. It will make whatever gains occur in the future look less bright. Therefore, keep a cool head when deciding how to invest. Don't expect miracles or attempt to achieve them to make up for any losses that were suffered. Time heals all wounds.