5 Mistakes to Avoid During a Market Downturn

5 Mistakes to Avoid During a Market Downturn

Investors make mistakes even during the best times, but the risk of making one of the below errors increases during market fluctuations. During a down market, investors should take advantage of buying opportunities only to rebalance a portfolio. Here, investors can learn which mistakes to avoid during market downturns.

Attempting to Time the Market

When trying to buy stocks at a low price, it’s almost impossible to determine where the bottom is. Similarly, it’s hard to sell at the top. Investors should buy stocks for their fundamental qualities and not the sale price. If it’s a sound investment, it will rise again when the market improves.

Depending on Fixed-Income Investments

When equities are suffering, investors tend to concentrate on bonds and GICs. While it can provide short-term reassurance, it may have long-term adverse effects. When the investor considers taxes and inflation, they may end up with a negative return rate. Asset allocations should be based on the investor’s risk tolerance, not the market’s past performance.

Turning to Gold

When markets decline, it’s common to see an increase in the price of gold. However, gold shouldn’t be looked at as a safe haven because of its volatility; prices can fluctuate by $75 or more per ounce in one day. It’s better to invest in US currency or government bonds in these cases.

Relying on TV Pundits

Fund managers commonly appear on business shows, but they typically take an approach that’s focused on their chosen sector. It’s important to take TV pundits’ claims at face value, as these people may have ulterior motives. It’s quite common for a money manager to talk up his or her own investments because they stand to gain when people follow their advice.

Counting on Quick Profits

Although many people day trade, it’s best to view investing as a long-distance race rather than a sprint. It’s quite risky to load up on a stock when prices are low, in hopes of selling for a profit when prices increase. To build a quality portfolio that can get through a market downturn, investors should stay balanced and diversified.

Investing is a tricky proposition even when the markets are on an upswing, but a sudden downturn can make things even more difficult. Investors can get great information here on how to build a strong portfolio and get through a bear market.

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