Should I Worry If The Markets Go Down?

Posted by Simon Moore on December 11
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When you invest, if you're like most people, you probably want your investments to go up every day. Sometimes they won't. Here are a few thoughts for when you see that happening.

Whilst seeing your current investments go down in value in a market dip can be hard it can also potentially provide an opportunity. The great investor Warren Buffet argues that idea that long-term savers worry when stocks fall in value can be thought of a bit like getting worried at the shops when socks fall in price. Normally, if the price of socks falls, you'd be happy and you may even decide to buy more socks. You'll need more pairs over the course of your life, so why not buy now when socks are cheap? Similarly if you're a long-term saver you are going to be buying a lot more stocks in future. Wouldn't you prefer to buy those stocks are a lower price rather than a more expensive one?

Another thing about investing, is that you can see the price of your portfolio every single day, often on a minute-by-minute basis. Unless your job is to be a professional market trader, then it's not clear that this information is helpful to you. Think about how if you owned a home, and you could check its price every day. Yes, your home probably does move up or down in price each day depending on what other homes are selling for and where people want to live.

However, as a home-owner this probably doesn't both you too much as you don't look at the information so often. Similarly with stocks, there's good evidence that stocks can deliver robust long-term returns just as a house can for the long-term investor. Nonetheless, because you can see the price of your stocks every single day and the price of a home only when you come to sell it, people tend to worry far more about their investment portfolio than their house, even if their investment prospects are quite similar.

Remember the markets do not always go up. In fact most years see dips in prices at some point, even if they prove to be short-lived. The next time a dip happens think about how you feel when socks rather than stocks go on sale, or how you feel about the value of your home as a long-term investment. The fact that declines in the stock market are so easy to access, and so talked about may sometimes cause us to worry more than we should. The key to both of the examples above is really to be a long-term saver, if you know that you are investing for many years, then shorter term market swings can be less of a concern, and possibly even an opportunity.

Photo: Jeremy Bishop

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Written by Simon Moore

Simon is responsible for investing and related content at Moola. He was previously CIO of FutureAdvisor, a US digital advisor. His most recent book Digital Wealth, explains automated investing. He studied economics at Oxford, and completed his MBA at the Kellogg School of Management.

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