I noticed recently the stock market suddenly dropped unexpectedly—and just like that I “lost” thousands of dollars on my investments. In this article, I will show you what to do when stocks go down. Want a FREE stock? Click HERE to sign up for Robinhood.
What To Do When Stocks Go Down?
We recently had the worst day for the Dow since the correction in February 2018. A correction is defined as a drop of at least 10% or more for an index or stock from its recent high.
I was nervous wondering, “Could this be the beginning of a correction?” It definitely seemed like a “sell everything” kind of day.
So you may be wondering “What to do when stocks go down?”
When the stock market declines so rapidly, I know it can be scary. You may feel like “I should probably sell now and cut my losses before I lose even MORE.”
And sometimes it is probably best to sell. However, before you go on a selling frenzy, do an analysis to determine if this is likely a short-term decline or if it’s REALLY time to sell.
Is It Time To Sell?
When determining if this is a short-term decline, ask yourself “will this decline affect earnings or growth of the company in the long-term?”
If it is just a short-term decline, you may want to buy stocks during the dip and hold them as a long-term investment.
If it looks like this decline will continue to trend downward well into the future, then I would get out while I still can. To learn more, this article from U.S. News discusses when you should buy stocks on the dip.
For me, the recent “loss” made me nervous, but I concluded there is no reason to panic and sell. This recent dip in the stock market wasn’t really an issue for me because my plan is to invest for the long-term.
Most of the companies I invest in I feel are high quality and will have growth in the future. I decided to use this as an opportunity to buy more stock in the companies I believe in.
Is It Time To Buy More Stocks?
I don’t recommend buying a stock just because it is “cheap” or on “sale” right now. You still have to decide if the stock is worth the lower price it’s trading at.
For example, if a stock was trading at $100 a share, and is now trading at $90 a share, it is natural to think $90 is a bargain price for that stock because $100 was the right price. But what if the stock never deserved to trade that high?
To determine the actual value of stocks, you need to look at a company’s revenues, assets, or profits. Without earnings and assets to back up the stock price, a stock will eventually continue to fall.
This article from The Motley Fool is a good place to start if you want to learn more about how to value a stock.
If you are a long-term investor like myself, I feel like a stock market decline is often a good time to buy high-quality companies at a good price. I personally use Robinhood.com to purchase individual stocks.
I like this website and app because you can buy and sell stocks for FREE—there are no commissions or fees. Most other brokerage firms charge at least a $4.95 fee per trade, and some have hidden fees.
Sign up today with my link, and you and I can get a free stock like Apple, Ford, or Sprint. With Robinhood you also don’t need a minimum account balance, so you can get started right away.
In short, you should look a drop in the stock market as a potential to buy some stocks in high-quality companies. Do some research and make sure the price you’re paying is an actual bargain.
Also, don’t panic and sell everything. Do an analysis first to determine if this is likely just a short-term decline, or if the company’s value will continue to fall. Then, and only then, should you make your decision to sell or hold.
Finally, you can track how your stocks are doing with a FREE Stock Investment Tracker that can be found in my Resource Library. Now you will know what to do when stocks go down next time!
- Best Ways To Invest In The Stock Market For Beginners
- Long Term Stock Market Investing: 3 Easy Techniques For Beginners
- Best Ways To Start Investing For Beginners: Investing 101
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