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Why should I stay invested when my portfolio is down? This is a question that investors frequently ask when the markets are volatile and making everyone panic. At Victus Group, we remind our clients that to be a successful investor; we need to give it time.
Your portfolio wasn’t built in a day, and, if you act rationally, it won’t topple in one day either. All downturns work themselves out, and the good investors play the waiting game while they do. It’s all about time in the markets, not timing the markets.
In our previous blog, we spoke about the cycles of the markets; not only are they caused by investor behaviour – but they also greatly influence investor behaviour. Market performance is impacted and determined by how individuals perceive that performance, investor psychology and sentiment affect whether the market will rise or fall. Stock market performance and investor psychology are mutually dependent. In a bull market, investors willingly participate in the hope of obtaining a profit.
During a bear market, market sentiment is negative as investors are beginning to move their money out of equities and into fixed-income securities, as they wait for a positive move in the stock market. This is not always the best move – following the crowd is not always in our best interest.
Those who are able to ride the market out, in theory, will benefit in the long run. In nearly one hundred years, the markets have grown more than they have fallen. And, because of this, businesses and the economy have also grown. The stock market and the economy are strongly linked.
A bear market is associated with a weak economy as most businesses are unable to record huge profits because consumers are not spending nearly enough. This decline in profits, of course, directly affects the way the market values stocks.
In a bull market, the reverse occurs, as people have more money to spend and are willing to spend it, which, in turn, drives and strengthens the economy.
Both bear and bull markets will have a large influence on your investments, so it’s a good idea to take some time to determine what the market is doing when making an investment decision.
Having the input from us at Victus Group is crucial at this point – but neither market situation is better or worse than the other as both have opportunities and threats to your investment potential. Keeping a broad diversification among sectors is always a good idea. Virtually all investors should have a mix of assets that aims to capture reasonable, rather than market-beating, returns. The objective is to keep volatility under control so that you can stay invested when your portfolio is down.