Stock Markets' Wild Ride
By Saghir Aslam
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Big up and down moves in the stock markets understandably make many investors wary and uncertain. What should we do in such volatile times?
First, put market volatility in perspective. Swings in the stock market over a few months or even a few years should not affect a long-term investment strategy. Historically, investing over the long term has tended to smooth out the bumpy rides that have occurred over the shorter periods of time.
- It has often been said that two emotions, fear and greed, are what determine such of the trading in the market. When stocks rise in a bull market, many investors may develop a false sense of security that nothing can stop this continued upward trend. They mistakenly believe that large gains made over a short period of time can be projected into the future indefinitely.
The “flip side” of false optimism is the disappointment that may set in when the market drops sharply in one day. In a bear market, many investors ay panic as they imagine their nest eggs vanishing before their eyes. Some may even sell when the market has gone down on the fear that it could go even lower. In either of these cases, it’s important to keep your long-term perspective in mind.
Stay Focused on your Objectives
- A steady course, somewhere between the extremes of bull market euphoria and bear market despair is the approach that long-term investors take toward investment, always keeping their future financial objectives in mind. As a long-term investor, don’t let yourself get caught up in predictions of what will happen tomorrow or next month. Even stock market professionals cannot always accurately predict the future of the market. In addition, be sure you understand what report in the newspapers and on television mean before reacting to them. Discuss it with your financial advisor. He can provide insight and play a valuable role in helping you maintain your focus on your focus overall investment strategy, which is extremely important. Have a well thought out, written plan, follow it and stay on course.
The key to keeping short-term volatility in perspective is to review your overall asset allocation strategy periodically, including your long-term savings goals. A proper asset allocation strategy, which takes into account your time horizon and risk tolerance, should factor in periods of market volatility. Bear markets and bull markets are part of the overall history of the markets. If you have a plan in place and learn to expect both kinds of markets, you can take the good and the bad in stride and know that you are indeed an investor for the long term. Furthermore, learn the difference between an investor, trader or speculator. I am discussing investing for the long-term. InshaAllah by following a sound investment plan you will come out ahead in the long run. May the Almighty God place Barakah on your life and on your investments.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)