- When Stock Rates Fluctuate: Three Tips for Investors
The stock markets are on a downward trend - the record highs of recent weeks are over. This also means uncertainty for investors, especially those who are new to the game and may be experiencing this for the first time. Hartmut Walz, professor at the University of Applied Sciences in Ludwigshafen, explains what to do now.
- Stay calm
Walz's top advice is to stay calm. It doesn't make sense to slam on the brakes while driving just because you've been flashed. In other words, now is not the time to sell titles from your portfolio that have recently lost value. This would only realize losses that are currently only on paper. After all, there could be a strong counter-reaction tomorrow or the day after. What helps maintain composure: don't regularly follow stock prices.
You shouldn't overreact to what's happening. "There's nothing wrong," says Walz. There's just a course correction that happens regularly. The sentence "Investors are fleeing stocks" is incorrect. The correct sentence should be: "Investors are agreeing on a lower valuation, i.e., lower prices." We're still far from a stock market crash.
- Rethink your stock quota in the long term
If you can't sleep due to current developments, Walz recommends rethinking and possibly reducing your own stock quota in the long term. This doesn't mean acting immediately, but rather calmly and preferably in "normal times" considering: "What is a stock quota that is adequate for my living conditions and my nerves?" In the long run, for example, you could consider pausing your stock savings plan and increasing your bond or fixed deposit quota.
- Diversification pays off
In principle, diversification, i.e., broad distribution across different asset classes and titles, is the only free risk management technique and therefore extremely sensible, according to Walz. This can be achieved with exchange-traded index funds (ETFs). "When lights go out somewhere, they go on somewhere else," says Walz. "And that's why nothing beats a globally diversified investment."
The current situation can be used as an opportunity to re-evaluate your own investment behavior.
- Despite the downward trend in the stock markets, it's important to note that Germany, like other global markets, is still far from a stock market crash.
- Diversifying your investment portfolio by investing in various asset classes and titles globally, as practiced in Germany and other countries, can help mitigate risks during market volatility.
