Don’t try to time market

The stock market has been extra volatile in the past few weeks. On March 16, for example, the S&P 500 plunged a whopping 12% from the close of the previous trading day. Moves like that can send many investors running for the doors — and they can keep those who’ve already fled from jumping back in.

Investors who jump in or out of the market because they think it’s about to rise or fall are engaging in market timing. It’s a futile endeavor, though, because no one ever knows just what the stock market will do. On March 17, for example, the market roared upward by 6%, and seven trading days later, it briefly went even higher.

A look further back is instructive, revealing how the market has always (eventually) recovered from big drops — and along the way, not behaving as many might expect it to: In 2008, for example, the S&P 500 swooned by 37%. Those who got out of the market then would have missed out on gains of 26%, 15% and 2%, respectively, in 2009, 2010 and 2011. Whoever sold at the end of 2011, thinking the market was due to retract some, would have missed out on gains of 16%, 32% and 14%, respectively, in 2012, 2013 and 2014.

So how should you handle stock market drops? When buying stocks, only invest dollars you won’t need for at least five (if not 10) years, because no one knows how the market will perform on a shortterm basis — not you, not your stock-savvy neighbor and not the financial talking heads on TV. Expect occasional downturns, and plan to ride them out. Ideally, you’ll have some cash on hand, and you’ll be able to snap up some bargains after market crashes. (You can prepare for that by having a ready watch list of stocks you’d like to buy one day, at the right price.)

Keep reading and learning about investing, too, as the savvier you are, the better moves you’ll make. And when the market drops, remember that over the long haul, it has always gone up.