When markets become volatile, as we’re seeing now, keep these three key pointers in mind.
Tip No. 1 – Don’t Panic – Stay Calm.
Easier said than done, I know.
But remember, markets are resilient. We’ve come back from far worse.
If you panic, you sell. And if you sell, you miss the potential for the recovery rally. We have to remember that markets are resilient and eventually recover, as they have historically. In fact, look back at the history of bad moves and you’ll see that each time they were followed by a recovery rally.
Tip No. 2 –Take Some Advice from Warren Buffett
Legendary investor Warren Buffett, whose company Berkshire Hathaway outperformed markets for decades, has seen his fair share of recessions. He also has the experience many other investors may lack. For example, he has always advised investors to have a long-term outlook, because short-term volatility is typical. Better, just as we noted above, even the most painful recessions are temporary.
In fact, in a 2016 annual shareholder meeting, the billionaire suggested that dark clouds would fill the economic skies and they would briefly rain gold.
“During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted,” as quoted by MarketWatch.
Tip No. 3 - Get Paid to Wait for a Recovery
Companies with strong cash flows and attractive yields tend to outperform even the worst of markets. According to The Wall Street Journal:
“Dividend stocks have become the new darling on Wall Street, and investors looking for income are pouring billions of dollars into them. These securities are considered a good buffer during times of market volatility. They also are seen as an inflation hedge, considering that S&P 500 dividend growth has outpaced inflation since 2000.”
Plus, dividend stocks allow investors to profit in two ways: one, through potential appreciation of the stock price, and two, through dividend distributions. Better, many dividend paying companies also have a good amount of cash and hand, and are typically strong companies with good prospects for long-term growth.
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