Investors around the world are panicked about what the start of the new year means…
In the first five days of trading in 2016, the U.S. Dow Jones Industrial Average dropped more than 1,000 points… a 6% decline.
China’s Shanghai Composite Index has plunged 15% in the same time period, while European markets are also down big – London is down 6%, Paris is down 7%, and Frankfurt is down 8.5%.
Volatility is spiking… The fear mongers are out in full force on TV… And news headlines are asking if this is the end of the bull market…
What should investors do?
I took a quick poll of my team to see how folks were feeling with all the gloomy market news, and my assistant and Retirement Millionaire Daily managing editor Laura reminded me of advice I’ve given subscribers for years…
Don’t let your fear pull you into the chaos.
This is one of the hardest rules to follow.
Most of us are hardwired to follow the herd…
A part of the brain called the amygdala drives this response. It consists of two tiny structures deep in the brain that connect emotions and fear. This is the so-called “fight or flight” system.
When individuals don’t follow the crowd, their amygdalae start firing. It makes them feel nervous… even sick to the stomach. This was useful in prehistoric days. There was safety in numbers when trying to avoid predators.
But our instincts work against us in the markets. They can cause investors to buy at the top, when everyone else is buying… and sell at the bottom, when everyone else is dumping their stocks.
The way to profit from fear is to avoid the herd… Sell what everyone wants to buy, buy what everyone is selling.
Investors who ignore the crowd often find investments on sale in times of high volatility.
After reciting this simple idea back to me, I was impressed. I asked her if she was worried about her portfolio and she just shrugged and said, “Not really.”
I’ll admit, the recent market volatility has me paying closer attention to my portfolio and thinking about a bear market in the near future.
When I asked her what she’s doing with her portfolio, she told me:
In my trading account with blue-chip stocks, I’m ignoring my long-term positions. These are stocks I plan to hold for years to come for income, so I’m not too worried about what the market is doing. I’m actually using this opportunity to invest in stocks I thought were too expensive.
The recent correction offers an opportunity to pick up stocks cheaper than you could have just a few weeks ago.
What’s my outlook for 2016?
No one can know the future, but I wouldn’t be surprised if the markets are sideways in 2016, if not slightly down for the year.
In my Retirement Trader newsletter, I told my subscribers a defensive strategy to protect us from a sideways or down-turning market.
If you’re not a Retirement Trader subscriber, next week I’ll be discussing our in-depth strategy… with the intent of showing folks how to make an extra $1,000 a month through all of 2016. If you’re interested, sign up for this special live presentation here.
But no matter what you decide to do with your portfolio, remember to follow two important rules to protect your investments: Always stick to your exit strategy and use asset allocation to keep your money diversified.
What We’re Reading…
- Exactly what has happened in China’s stock market, from Steve Sjuggerud.
- Cole slaw is officially off the Chick-fil-A menu (to be replaced with a kale-and-broccolini salad), but you can find the recipe here.
- The late David Bowie wasn’t just a rock star… he pioneered a new type of income-paying security on music royalties.