Are you worried about the stock market?  1 movement to avoid at all costs |  Smart Change: Personal Finances

Are you worried about the stock market? 1 movement to avoid at all costs | Smart Change: Personal Finances

(Katie Brockman)

The last few months have been difficult for the stock market. After peaking in early January, the S&P500 fell sharply later in the month. Since then, it has bounced back only to fall again, entering correction territory twice so far this year.

This kind of volatility can be hard to bear, especially if you have a lot of cash tied up in your investments. But no matter what the market does, there is one thing to avoid if possible: withdraw your money from the market.

Image source: Getty Images.

Why it is better to avoid withdrawing your money

When the market is fragile, it is human nature to want to withdraw your money. But this can be risky for several reasons.

For one thing, a decline in stock prices does not necessarily mean a crash is imminent. If you sell all your investments thinking the market is going to crash, there is always a chance that stock prices will rebound immediately.

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If this happens, you will miss out on those winnings. Also, unless you plan to stop investing forever, you will need to reinvest your money at some point. If the market has risen since you sold your shares, you could end up paying a premium for the same shares you just sold.

Selling your stocks to try and avoid the impact of volatility essentially involves timing the market, which is an extremely difficult and risky strategy. If you sell your stocks and the market rebounds, you’re in trouble. But if you sell too late and prices have already fallen, you may be selling at a loss.

How to keep your money safe

Although it may seem counter-intuitive, one of the best ways to help your investments survive periods of volatility is to do nothing.

Market downturns are disheartening, but they don’t last forever. Although it may take months or even years, the stock market will eventually rebound. And when it does, your investments should rebound with it.

Taking a long-term approach is one of the most effective ways to avoid losing money. Although your stocks may be affected in the short term if the market falls, you don’t lose anything unless you sell. By simply holding your investments for the long term, no matter what the market does, you can ride out the storm.

The key, then, is to make sure you’re investing in the right places. Not all stocks are strong enough to survive a market downturn, but healthy companies with strong fundamentals have the best chance of surviving. The more of these stocks you have in your portfolio, the better off you will be.

Stock market volatility can be nerve-wracking, but protecting your savings is easier than you think. By choosing the right investments and holding them for the long term, you can have peace of mind knowing that your money is as safe as possible.

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