The stock market is unpredictable and things can go from great to grim at the drop of a hat. If you’ve got money tied up in investments, even the slightest dip can put you on the edge of your seat. But panicking isn’t the answer. Instead, it might be a good idea to study the habits of wealthy investors. Here’s a look at what you won’t catch them doing when stocks tumble.
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1. They Don’t Give in to Fear
Fear can lead to bad decisions, especially when you’re watching a big part of your wealth seemingly disappear. When you see one of your investments dropping in value day after day, you may be tempted to offload it as quickly as possible. But that’s a knee-jerk reaction that many high net worth investors know to avoid.
Consider Warren Buffett, for example. When the market takes a dive, he doesn’t sell off his investments at breakneck speed. In fact, he does the opposite. He holds his existing investments and usually uses a market drop as an opportunity to buy up more.
Why? Because he’s not running scared. After all, his classic rule is to “be fearful when others are greedy and greedy when others are fearful.”
2. They Don’t Focus on the Short-Term
Investing is a long-term game and if you want to get ahead, you’ve got to be willing to stick it out. If you’ve spent any time studying the market at all you probably know that it moves in cycles. There are downturns and upswings but the two extremes tend to balance one another out eventually.
Wealthy investors aren’t solely concerned with what they’re losing in the moment. Instead, they’re looking ahead to what they stand to gain once the market rebounds.
Related Article: 5 Investment Challenges Even Wealthy Savers Face
3. They Don’t Miss an Opportunity to Rebalance
One of the keys to successfully building wealth is to maintain the right mix of assets in your portfolio. When the market declines, that’s a great opportunity to see how all of your investments are doing and identify any areas for potential improvement.
For example, if you’ve got an investment or two that wasn’t performing well before the market took a turn for the worse, odds are that it’s not going to make any huge gains once the market rebounds. If that’s the case, you can still wring some benefits out of it by selling it and replacing it with a similar investment to minimize taxes on future gains.
4. They Invest in More Than One Security
You won’t catch the wealthiest investors sinking all of their money into a single stock or mutual fund. Instead, they often spread their wealth out over a variety of different investments so they don’t take as much of a hit if one asset loses value.
If you want to take a page out of the wealthy investor’s playbook, you could consider diversifying your portfolio to hedge against market drops. Including a mix of dividend-paying mutual funds, stocks, bonds, real estate and cash can give you a well-rounded base to work from.
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Generally, the younger you are the more risk you can afford to take on, but it ultimately comes down to your comfort level.
The Bottom Line
Wealthy investors don’t hit the panic button when the market fluctuates. And as a result, they’re able to hold onto more of their investment dollars over time. Keeping cool, calm and collected in times of crisis can help you mimic their success and avoid making the wrong moves with your money.
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