Every investor will have to face multiple situations that will put their tenacity to the test. Runaway inflation, the hangover from the Covid-19 pandemic, the invasion of Ukraine and all its derivatives, such as energy uncertainty, are some of the factors that have influenced the recent fall in the markets. Against this background, the forces of the investor weaken. However, the first thing he must do is remain calm. And, the second, to continue maintaining it in the face of uncertainty.
If the stock market falls, any investment that has a plan in place must continue as before. Do nothing. The formula is very simple, but difficult to carry out. According to experts, the most common mistake is to panic and sell. At first it may seem reasonable to get out of the market during a crisis, to avoid worse evils, however, it is not the best solution especially if you invest in the long term; something most investors do.
Why is it better to resist? Because time is a fundamental variable. “In matters of money, time counts at least as much, and surely more, than quantity,” explains Natalia de Santiago, an expert in finance, in her new book Invest with little (Planeta, 2022). “I will say it a thousand times: the secret of any successful investor is to have time in his favor. The more time you have to see your investments grow, the less risk you will be taking and the more time you will be giving your money to accumulate interest and pick up speed, ”she explains.
In the short term there can and often are falls, but the general trend of the markets is bullish. Statistics show that the stock market goes up in the long run. This is observed if the behavior of S is taken as an example
For specialists, the time you stay in the market is more important than knowing when to buy and when to sell. “We have recorded in the collective imagination those Wall Street gentlemen shouting frantic purchase orders into the phone! and sell!, as if everything were to life or death, but the reality is that the life of an investor is much more like planting a garden and waiting, diligently watering, for your seeds to bloom”, says De Santiago.
Another reason why it is always better to resist the crisis is that you will surely sell at the worst moment and thus miss out on the best. When you panic sell, you usually do so after big drops. The average investor is not attentive to the day-to-day of the markets –nor does he know how everything works– and, therefore, he tends to make the decision moved by the advice of his adviser or when he sees news in the media or networks. social.
The problem is that then it is easy that a good part of the fall has already been consummated and, above all, the day of the greatest decline in the stock market has occurred, warn, for their part, the experts from Fundación MAPFRE. If he sells then, the investor will do so near the bottom. According to an analysis by the consulting firm J. P. Morgan, a new drawback is added to this: the days of the biggest rise in the stock market tend to occur within 15 days after the biggest fall.
Therefore, missing only the 10 best days, the ones where the stock market rises the most, has a huge impact on long-term profitability, they point out from the study carried out by the consultancy. A great opportunity will have been missed. In addition, there will be those who do not even invest again and then inflation will eat away at their savings. “That inflation rises is death in life for our savings. The belief that these are safe in the bank is a myth that must be dismantled as soon as possible”, warns Natalia de Santiago.
In addition to maintaining the long-term investment plan, you can do something else: take advantage of falls to invest better. As Fundación MAPFRE explains, the logic of investing more during or after falls is simple, since you end up taking advantage of or taking advantage of the long-term positive trend of the stock market. As a long-term investor, what you do in crises or downturns is buy something cheap that you know will rise in price in the long term.
In this case, the convenient thing for that additional investment is to use the liquidity of your portfolio, which should not be confused with the emergency cushion. In fact, only the money saved that is not needed on a day-to-day basis should be invested so as not to fall into a spiral of debt from which you cannot get out later. That money in liquidity is money that can be saved in safe products while waiting for investment opportunities to arise.
In the end, we must assume that, as Natalia de Santiago points out, "money is made slowly and with good handwriting" and apply what she calls "financial zen: it is said to treasure peace of mind -and of pocket- to not having to undo your investments at a bad time incurring unnecessary losses”. The market will have ups and downs, the key will be to stay in the low hours to take advantage of the good moment that, in the long run, will surely come.
