Financial markets experience their ups and downs – it's a part of every investor's journey. While not a pleasant experience, keeping a few key points in mind can help you navigate these times.
Remember, market downturns are a natural part of economic cycles. Despite these short-term fluctuations, history shows us that markets generally have an overall trend of growth. So, even when things appear bleak, the larger narrative is one of resilience. Learn more about market recoveries here.
This article explains our philosophy on long-term investing. It is based on the fact that equity markets have recovered from wars and financial crises in the past in the long run. Nevertheless, no one can predict the future, past returns are never a guarantee and thus investing always carries the risk of losing money.
Here are 5 things to keep in mind when markets are fluctuating:
1. Remember your cash buffer
Always maintain a healthy cash buffer in your bank account to cover any unexpected expenses. This ensures you don’t need to sell investments during a downturn in the market. Ideally, this buffer should cover 3-6 months of your monthly expenses. Knowing your investments are not needed immediately can help you sleep well at night. If you feel your cash buffer is insufficient, focus on increasing it before investing more.
2. Keep Selma up to date with your situation
Review your investor profile regularly to ensure it reflects your current financial situation, willingness to take risks, investment horizon, or any planned larger expenditures. Keeping your investor profile up to date ensures that your investment strategy matches your situation at any given time.
3. Think long-term and stick to your plan
At Selma, your investment plan is designed for the long haul. It's a global mix across various asset classes, aiming for a broad diversification of your investments. Diversification is very important as it helps to better balance risk. It's crafted to weather these ups and downs and to benefit when global economies recover. The longer you invest the more time markets have to recover and grow. Remember, focusing on your long-term goals turns today's market volatility into mere footnotes in your investment story. The secret to getting through market crises is to stick to your plan and think long-term. In the end, the worst thing you can do during a crisis is to heed your emotions.
4. Invest regularly – even when markets go down
Monthly investing helps you better balance the ups and downs of the markets. It reduces your risks and provides you with a more stable performance over time. Even if it seems counter-intuitive at first, it's particularly relevant to continue investing when markets go down: this gives you the opportunity to buy more shares for the same amount of money and benefit even more once markets recover. Stick to your plan, try not to get distracted by market ups and downs, build up your wealth for the long run and continue to take advantage of times when market prices are cheap.
5. Time in the market beats timing the market
Timing the market hardly works, as markets move faster than you can anticipate. Time in the market is thus more important than timing the market. Remember the strength of compound interest: the longer money can remain invested, the better for you. The snow-ball effect of compound interest becomes stronger the longer money remains invested!
In the unavoidable ebb and flow of financial markets, remembering the fundamentals and remaining cool-headed will increase your chances of coming out on top in the end.