Monday was yet another dismal day for the stock market, with the Dow tumbling more than 500 points as COVID-19 fears and election worries continue to spook investors. In fact, between Friday and Monday, my personal brokerage account balance fell by about $5,000, and that's on top of the steady declines I've been seeing in that account since earlier in the month.
But in spite of all that, I'm still not particularly worried about recent stock market activity. And if you take the right approach to investing, these blips won't end up bugging you, either. Here are a few specific reasons why I'm far from panicky right now.
I'm not planning to sell my stocks anytime soon
As a general rule, you should never invest money you expect to need within the next seven years. The reason? That gives you plenty of time to ride out an extended stock market downturn and come out ahead. The money I have in my brokerage account is cash I don't intend to touch for a very long time. As such, there's no need to sell off any of my stocks while they're down unless I decide to do so for tax-loss harvesting purposes. And if I don't sell, I won't lose money.
Incidentally, I also happen to have a healthy emergency fund with enough money to cover more than six months of living expenses. That safety net gives me the option to leave my stocks alone even when unplanned bills pop up.
I've chosen my investments wisely
The stocks in my brokerage account didn't just land there randomly. I hand-picked each and every one of them. And frankly, I'm confident in the fact that I've chosen solid companies with strong performance histories. Much of my investment strategy focuses on growth stocks -- companies with the ability to boost their revenue and earnings faster than the average. These companies align well with my long-term, buy-and-hold approach to my portfolio, and so I have confidence in their ability to bounce back in the face of a downturn.
My portfolio also happens to be pretty diverse. I own several dozen individual stocks, plus exchange-traded funds that give me broad exposure to the market. That, in turn, lowers my risk of bearing serious losses in my brokerage account. Even if a few individual stocks take a longer-term hit, I have many, many more to compensate.
I know that stock market declines are normal
This isn't the first period of stock market volatility I've invested in, and I doubt it will be the last. Stock market downturns are completely normal, and in fact, they open the door to opportunity. Accepting that from the start has always helped me keep my emotions in check as an investor.
Let's be clear: Stock market crashes may be nerve-wracking, but that doesn't mean you should fall into an utter panic every time the market has a bad day, week, or month. The thing to remember is that the market has a strong history of recovering from losses and then some. Doing your best to stay positive will spare you a world of stress over the course of your investing career.
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