Inevitably, when the market dips people will panic. Unfortunately, media coverage in this situation can inflate people’s anxiety with sensationalist reporting. It is essential to remember that market dips are an inevitable part of investing and the market cycle.

That being said, seeing your investments lose value can be unsettling, so how you compose and prepare yourself for these dips can make a significant difference in your long-term financial success.

What should I do when the market dips?

Don’t Panic Sell

When people see the value of their portfolio decrease, they may want to sell and pull their money from the market in order to protect what they still have. It is natural to feel anxious in this situation, but making snap decisions based on fear can lock in losses and potentially derail your long-term investment strategy. Instead, you should take a step back and assess the situation rationally. Remember, market dips are often temporary and can present opportunities to acquire more assets at a lower unit cost.

Avoid Timing the Market

Predicting the perfect moments to buy or sell (aka Timing the Market) is a challenging and often ineffective strategy for investment as there is no definitive way to do this. Investing always comes with some degree of risk, which in some circumstances may be that the price of your investment increases after you sell.

Even seasoned investors struggle with knowing the ideal time to buy or sell. Instead, focus on maintaining a disciplined investment approach that aligns with your long-term goals and risk tolerance. Trying to react to market fluctuations can lead to missed opportunities and increased risk.

Unfortunately, being able to time the market is nearly impossible. Instead, you may want to consider Dollar-cost averaging. Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of market conditions. This strategy can be particularly advantageous during market dips, as it allows you to purchase investments at lower prices and potentially benefit from lower average costs over time.

Revisit Your Investment Goals and Strategy

When the market dips, you mind is on your portfolio, so you should use this time as an opportunity to revisit your investment goals and strategy. Are your goals still aligned with your current investment approach? Avoid making decisions based on short-term market changes and instead concentrate on the long-term outlook. If your goals or risk tolerance have changed, it might be time to adjust your strategy accordingly.

Diversification is also a key consideration when looking at your investment goals and investment strategy. By spreading your investments across different asset classes, sectors, and geographic regions, you can reduce the impact of a market dip on your overall portfolio. If one sector or asset class declines, others may perform better, helping to buffer against losses.

Maintain a Long-Term Perspective

One of the most effective ways to manage market dips is to maintain a long-term perspective. Investing with a long-term view means you’re less likely to be swayed by short-term market movements. Historically, markets have recovered from downturns, and maintaining a long-term focus helps you stay committed to your investment plan without being derailed by temporary volatility.

Keeping yourself informed about market conditions, economic trends, and investment principles can help you make better decisions during market fluctuations. Educate yourself about how different factors influence market movements and how to respond effectively. Knowledge empowers you to make informed choices rather than reacting impulsively to market fluctuations.

Consult a Financial Advisor

If you’re unsure about how to navigate a market dip or need personalised advice, you should consult a financial advisor. A financial advisor can provide you with specific guidance that takes your personal factors, lifestyle and goals into consideration.

Market dips are a natural part of investing, but how you respond can significantly influence your financial outcomes. Remember, successful investing is not about avoiding dips but managing them wisely and staying committed to your financial goals.