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4 Things To Do When The Stock Market Drops

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Today the stock market took a hit. The Dow Jones Industrial Average fell almost 832 points or about 3.2%. The S&P 500 lost almost 3.3%, its fifth decline in a row. Higher Treasury yields were a driver, as were declines in previously high-flying stocks like Amazon and Netflix. What should you do now? Here are 4 things to consider when the stock market drops.

4 Things to do When the Stock Market Drops

Breathe 

Cable news networks like CNBC have a field day during steep, sudden stock market corrections like we saw today. It’s easy to get caught up in all of this hype. Don’t let yourself be sucked in.

Step back, take a deep breath and relax.

Take stock of where you are 

Review your accounts and assess the extent of the damage that has been done. Depending upon how you are invested it may be minor or a bit more significant. Investors who are well-diversified have probably been hurt but not to the extent of those with a heavy allocation to equities and other volatile areas that have been hit.

Review your asset allocation 

Has your portfolio weathered this storm and the declines we saw earlier in the year as you would have expected? If so your allocation is likely appropriate. If not, then perhaps it is time to review your asset allocation and make some adjustments. Proper diversification is great way to reduce investment risk. This is a good time to rebalance your portfolio back to your target asset allocation if needed as well.

Go shopping 

Market declines can create buying opportunities. If you have some individual stocks, ETFs or mutual funds on your “wish list” this is the time to start looking at them with an eye towards buying at some point. It is unrealistic to assume you will be able to buy at the very bottom so don’t worry about that.

Before making any investment be sure that it fits your strategy and your financial plan. Also make sure the investment is still a solid long-term holding and that it is not cheap for reasons other than general market conditions.

The Bottom Line 

Steep and sudden stock market declines can be unnerving. Don’t panic and don’t let yourself get caught up in all of the media hype. Stick to your plan, review your holdings and make some adjustments if needed. Nobody knows where the markets are headed but those who make investment decisions driven by fear usually regret it.

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