If you follow the markets and even if you don’t – you most likely heard about the rollercoaster ride the stock market took us on this past week. We started the week off in red territory on Monday and then all of a sudden things went back to normal on Wednesday as if nothing happened.
Then Thursday and Friday came along bringing us close to correction territory – which is when major market indexes drop by 10% or more in value. The last time I recall experiencing such a drop was in the summer of 2016 when the Brexit announcement was made.
The topic of my Instagram Live on Tuesday was about preparing yourself for the tough time in the markets – which WILL come. Downturns do not make any announcements and we never really know when they will arrive or when they will end. If we did, we’d all be very wealthy people.
If you are trying to figure out a way to time the markets and the “perfect times” to buy or sell – your time should probably be spent on something else. This is nearly impossible.
As we most things in life, all we can really do is learn to prepare in a way that works for us. In this blog post, I will summarize some of the points I talked about in my most recent Instagram Live stream.
Let’s get to it.
Make sure you are actually READY to start investing. During the days in which the market dropped significantly I got messages from people very eager to start investing in fear of “missing out”. If you’ve never invested before, it is probably not a good idea to simply jump into the markets with no idea of what you’re doing. There is a time to educate yourself, to prepare, and to finally take action. I would never tell anyone to skip any of those steps. The “I want to invest now!” messages is what inspired me to write the 8-week series “Preparing Yourself To Start Investing“. I want people to really understand what it means to prepare themselves for what they’re getting themselves into. You cannot run without taking baby steps first. Understand the importance of building a solid foundation from the ground up and then hit the ground running. The earlier you start preparing yourself the better but please do not skip this step.
If your plan is to invest on your own – make sure you have an online brokerage account. When it comes to investing platforms – we have a whole lot of options: Apps, Robo Advisors, investment management companies, online brokerage accounts, and the list goes on. I talk about each of these in the series linked above. However, if your goal is to invest on your own – you have to at least have an account open and funded which takes me to my next point.
Make sure you have enough money available to invest in that online brokerage account. There were some stocks on my watchlist that I was eager to add to my portfolio on Thursday when I suddenly realized I didn’t have enough funds available because most of my money was fully invested. I realized I would have to go through the process of doing a wire transfer from my bank into my online brokerage account in order have the funds to add the stocks I wanted. For most online brokers the transfer period takes about 3 business days. Lesson learned is to always have at least enough of a cushion available in your accounts to take full advantage of opportunities.
Have a clear idea of what you want to buy. In preparation of the “downturns” whether they take 2 days or 2 years to come around – make sure you have an updated watchlist easily accessible at all times. The watchlist should be composed of stocks or investments you feel strongly about and have done your homework on. Let’s call these “dream stocks” you’d love to add to your investment portfolio if the perfect opportunity presented itself. Have this list in a place where you can find it quickly – either on your phone’s notepad, an excel spreadsheet saved on your desktop, or any other method you find convenient. You don’t want to be presented with a good opportunity and be in a situation where you don’t even remember what stocks or investments were on your radar. Stay ready at all times!
Don’t be afraid to take advantage of obvious opportunities. One of my investing mentors – Warren Buffett – has a quote that makes a whole lot of sense because is very true. I shared this in my Instagram account the other day but here it is again:
The reality is that, as hard as it might be to believe, opportunities to buy great companies at deeply discounted prices do not come often. Learn to understand when those opportunities are presenting themselves and take advantage but only if you feel comfortable and ready to do so.
Understand that the stocks or investments you buy might continue going down in price until the market stabilizes again. The fact that you bought something doesn’t mean the market will automatically recover and everything will go back up again. It will take time for the stock market to stabilize itself again and no one really knows how long that will take. If you decide to buy something, do so with the understanding that it might take some time before you see returns on that investment. This is why doing your homework ahead of time is so important so that you’re able to make educated decisions with confidence and not worry too much.
And that is all for now! If you have additional tips or tricks to share when it comes to preparing for a downturn, share below in the comment section or head over to the Facebook Group.
Have an amazing weekend and cheers to profits!
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