How to Handle a Stock Market Like This

by 24USATVFeb. 23, 2021, 11 p.m. 25
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The stock market opened sharply lower on Tuesday morning, as investors continued to rotate away from some of the best performers of the past year. Yet over the course of the morning, major market benchmarks clawed back a good portion of their losses for the day. As of 11:15 a.m. EST, the Dow Jones Industrial Average (DJINDICES:^DJI) was down 84 points to 31,437 after having been lower by more than 350 points at one stage. Similarly, the S&P 500 (SNPINDEX:^GSPC) recovered from as much as a 70-point drop to be off just 22 points at 3,855, and the Nasdaq Composite (NASDAQINDEX:^IXIC) trimmed its losses by more than half, although it remained down 207 points to 13,326.

There's a lot of worry among investors that after having rebounded so quickly and sharply from last winter's coronavirus-driven bear market, now's a perfect time for another stock market crash. That's always a possibility, and it's a danger that every investor has to get used to and be prepared for. However, just because you're ready for a crash doesn't mean that you have to feel that level of anxiety every day. There are ways to get used to investing in turbulent markets and even eventually reach a comfort level with it.

The first thing to remember is that if you're looking at financial news, you're going to hear about all of the most extreme examples of what's going on in the stock market. For instance, this morning, everyone was abuzz about the massive drop in stocks in the electric vehicle industry. Tesla (NASDAQ:TSLA) always gets headlines no matter what's happening with the automaker, and news that Tesla shares were down as much as $95 made for a sensational reversal of fortune for the high-flying auto stock.

EVs also fed into the craze for special purpose acquisition companies. One SPAC announced a deal with an EV manufacturer, as Churchill Capital IV (NYSE:CCIV) finally moved beyond the rumor mill and inked a firm agreement with luxury EV upstart Lucid Motors. Yet when that deal got announced, the stock actually plunged by nearly half from its perch above $60 per share just yesterday morning. Some investors seemed disappointed by the size of ownership stake that the SPAC received, while others simply appeared ready to sell the news of an actual deal after having bid up the share price on the pre-agreement speculation.

Some other pockets of the market also fell sharply, giving back recent gains. But for most of the market, the moves were uneventful. Even at their worst levels of the day, drops of 1% to 2% for the major market benchmarks show how far from a full-blown crash the market is right now.

Keep your eyes on the prize

The other mistake many people make on tough market days like today is to think that big market drops aren't part of the overall plan for their financial success. Everybody loves to see the charts that show their portfolio value moving upward smoothly and consistently year after year, decade after decade, until they reach retirement. For many, it's the consistency they crave even more than the actual amount of appreciation in the stock price -- and they might well give up a few percentage points of return if they could get a smoother ride along the way. But if you want top returns from the most promising stocks, there's no alternative to dealing with volatility.

The best defense is simply to remind yourself of why you own the stocks in your portfolio. Occasionally, a news item will actually affect your true opinion of a company's potential, and in that case, you might have a tough decision. Far more often, the news that sends the market dropping has little or nothing to do with the companies whose stocks you own. In that case, just nod and reassure yourself that you're still holding the stock for the right reasons.

You can do it!

Lastly, if your nerves are killing you, take some comfort in the fact that you're not alone. Beginners and experienced investors get scared of tough market days like this. I've been investing for 35 years, and these days still put me on edge. Just have confidence that you'll make it through, and you'll find that while it's never easy, it does get easier over time.

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