Strategies for When Stocks Drop

Strategies for When Stocks Drop

Although US stocks appear poised for continued growth, “risks remain and a market decline can be just around the corner, threatening to unnerve investors at any time,” according to a recent Fidelity article that outlines strategies investors can use when such dips occur.

Emphasizing the importance of sticking to an investment plan, the article advises investors to evaluate each market movement “through the lens of your specific objective and risk constraints,” including their time horizon.

Long-term investors, it says, might consider using excess cash to “establish new positions in companies you have wanted to buy and previously felt were expensive.” Short-term investors, on the other hand, may view pullbacks as a buying opportunity, but warning that “this approach comes with more risk, given that it integrally involves market timing—which can be difficult.” An alternative, it says, it to “simply wait out the market dip. When markets become less volatile, you might resume implementing your short-term strategy.”

Time horizon is only one of the factors to consider, the article concludes: “When you are building and updating your investing plan, you may want to account for how you will respond to sharp price moves based on your portfolio’s overall objectives, tax constraints, liquidity needs, and risk tolerance as well.”

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