Monday January 21, 2013
Tips for investors on what to do during an economic crisis
Financial Snacks by Joyce Chuah
We have seen it before: panic when the market falls. And yet, despite the headlines proclaiming the next Great Depression, the recent credit crunch in 2008 was no Great Depression. JOYCE CHUAH advises against panicking.
IN reaction to financial meltdowns, investors tend to panic and get out at all cost, thus incurring losses. They begin to behave in a herd-like fashion and stay up nights extrapolating the most recent trends and expecting it to continue indefinitely.
All these tendencies have the ability to work against them and prevent them from reaching their financial goals. It is no wonder most investors end up discouraged with their investing activities, only to lament that it is always a zero sum game.
So, what can individual investors do in times of uncertainties? We should forget the game of short-term trading, and stick to longer time horizons.
The media and stock market gamblers' focus on minutes, hours, and days, while those who are serious about the other areas of their financial life focus on years and decades. Unfortunately, some people waste so much time and effort in predicating the next stock market level, trying to second-guess which stocks will soar, that they have entirely neglected the other more important areas of their financial life which are foundations to securing a stable financial future.
Time can be better spent following a systematic approach to retirement planning and a conscious effort to accumulating wealth rather than emotional short-term trading without a direction and a purpose. On that note, do remember that greed is not a valid purpose.
Are you wasting a good crisis? Were you taken in by the panic? If you sold off your positions (realising losses) or sat on your position (you did nothing to average down), then the answer is a yes.
However, if you had accelerated your longer term wealth accumulation plans during those periods by taking advantage of good attractive bargains (be careful, there are bad bargains out there too), you have strengthened your financial foundations for the future. And you'll be glad you did when you look back in a few years' time.