The Beginner’s Guide to Investing

3 things you should never do when the stock market tanks

Traders work on the floor of the New York Stock Exchange (NYSE).
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The Dow Jones Industrial Average plunged 850 points on Monday, while the S&P 500 fell 3.3%. The Nasdaq Composite dropped as well, falling 3.9%.

This comes in response to growing tensions in the trade war between China and the U.S. China, which has historically controlled its currency, the yuan, allowed it to fall to its lowest level against the dollar in over 10 years, CNBC reports. In response, President Donald Trump accused China of manipulating its currency. "This is a major violation which will greatly weaken China over time!" he said in a Tweet.

But what does this mean for the average investor? First of all, you don't need to lose your cool, experts say. However, there are some basic steps you can take to make sure you're being smart with your money.

Here are three things not to do when the market's being volatile:

1. Don't panic-sell

"Volatility happens," James C. Kelly, a wealth strategist at PNC Bank, tells CNBC Make It. To lessen the impact of any potential loss, this could be an opportunity to re-balance your portfolio, including a mix of stocks, bonds and other securities. You can also consider buying more stocks while prices are low.

Just don't give into the temptation to "panic-sell."

"Panic-selling is the worst thing you can do," says Joe Mallen, chief investment officer at Helios Quantitative Research. Instead, "look for opportunities to put unused cash into investments you have been considering. Consider it a time when everything is briefly on sale and buy into broad market funds or individual stocks you believe in long term."

"The best thing would be to buy more, or at the very least hold tight," Greg McBride, chief financial analyst at consumer financial company Bankrate, adds. "The worst thing to do is sell into a market decline if your long-term objectives haven't changed."

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2. Don't watch obsessively

During times of volatility, investing expert and "Oracle of Omaha" Warren Buffett suggests keeping a level head. In response to market swings in 2016, he said: "Don't watch the market closely." If investors are too worried about their stocks dropping "a little bit … and think they should maybe sell them when they go up, they're not going to have very good results."

Don't try to time the markets. "It's a natural instinct to want to reduce your exposure to assets that are declining," Kelly says. But "resist the urge."

If it helps, stay away from the news.

3. Don't be short-sighted

Many investors can feel overwhelmed by market volatility. A 2017 survey by Ally Invest found only one in three millennials is investing in the stock market because they find it "scary or intimidating." And a 2018 Gallup poll found less than half of young Americans are putting their money in stocks because of the 2008 market crash.

But, "while your gut instinct might be to sell certain positions while the markets are going haywire, try to take a deep breath before making any rash decisions," Kelly says.

If you're new to investing, experts recommend starting slow, remaining calm and looking at the big picture. Rather than cherry picking individual companies to invest in, Buffett say index funds are a good way to get into the market. Index funds not only offer low fees, but they fluctuate with the market so there's no risk of picking individual stocks that underperform.

"The trick is not to pick the right company," he told CNBC's "On The Money" in 2017. "The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently."

Consider this volatility a great opportunity.
Joe Mallen
chief investment officer at Helios Quantitative Research

Young people especially shouldn't shy away from investing during periods of market volatility. "One of the biggest regrets of adults is not investing sooner," Mallen says. "If you have yet to invest into the market, consider this volatility a great opportunity to do so."

Whatever your approach, remember to pay yourself first, says Kelly. "Save as much as you can in retirement accounts" like a 401k or Roth IRA. Also, "cut costs where you can and make sure you have an emergency fund: three months to six months of living expenses."

"When it seems like the sky is falling," he adds, "do your best to remain calm and remember that corrections and market downturns are normal and healthy. As an investor, you never want to make decisions based on emotions, especially fear, so first and foremost, try to remain calm."

McBride agrees: The best strategy is to "maintain your long-term perspective."

This story was originally published on October 11, 2018, and has been updated to reflect current stock market changes.

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