There have recently been significant price drops on the stock markets. This has left many investors on edge. But what should we do now?
The stock markets are on a downward spiral – the record-breaking mood of the past few weeks is over. But that also means uncertainty among investors. Especially among those who are new to the business and are perhaps experiencing it for the first time. Hartmut Walz, professor at the University of Economics and Society in Ludwigshafen, explains what needs to be done now.
1. Keep your feet still
According to Walz, the most important piece of advice is to keep your feet still. It makes absolutely no sense to slam on the brakes when you have been caught speeding. Translated, this means that selling securities from your portfolio that have recently lost a lot of value makes little sense. This is because investors would only realize losses that currently only exist on paper. According to Walz, there could be a very strong counter-reaction tomorrow or the day after. What helps you stay calm is not to monitor stock prices regularly.
One should not overestimate what is happening at the moment. “Nothing bad is going on at all,” says Walz. There is a price correction that keeps occurring. The sentence “Investors are fleeing from stocks” is wrong. The correct sentence should be: “Investors are agreeing to a lower valuation, i.e. lower prices.” We are currently a long way from a stock market crash.
2. Rethink the equity allocation in the long term
Walz recommends that anyone who cannot sleep well because of current developments should reconsider their share quota in the long term and reduce it if necessary. However, this does not mean acting immediately, but rather thinking carefully and preferably in “normal times”: “What is a share quota that is appropriate for both my life circumstances and my nerves?” In the long term, for example, you could consider suspending your share savings plan and increasing your bond or fixed-term deposit quota.
3. Diversification pays off
Basically, according to Walz, diversification, i.e. broad distribution across different asset classes and securities, is the only free risk management technique and therefore extremely useful. This can be achieved with exchange-traded index funds (ETFs). “When the lights go out somewhere, lights come on somewhere else,” says Walz. “And that’s why nothing beats a globally diversified investment.”
The current situation can be used as an opportunity to rethink your own investment behavior.
Source: Stern
I am an author and journalist who has worked in the entertainment industry for over a decade. I currently work as a news editor at a major news website, and my focus is on covering the latest trends in entertainment. I also write occasional pieces for other outlets, and have authored two books about the entertainment industry.
