In times of crisis, the stock markets can be turbulent. Those who are invested should be aware that setbacks can happen. Feelings are not good advisors.
Regardless of whether shares, funds or ETFs: around every seventh German owns securities. The hope of investors: to increase their own wealth. But prices don’t always go up, especially in times of crisis, the assets in the portfolio can melt away. But even if you only look in the red for weeks, it is important not to lose your nerve.
Because if you sell when prices are falling, you make real losses in euros and cents from the book losses that investors can track in their portfolios. All those who do this miss the opportunity to recoup losses or even benefit from price gains in times of economic upswing. “That’s why the best advice for investors in such situations is often simply to do nothing,” says Jesper Wahrendorf, head of asset manager Vanguard Invest.
Financial economist Prof. Hartmut Walz is also convinced that emotions and market sentiment usually lead to wrong and fatal decisions. In addition, the fears are often unfounded. It is better to develop a solid long-term investment strategy regardless of the current market phase and to stubbornly pursue it even in times of crisis.
Particularly important here: the broad distribution. Only investors who invest in different companies, world regions and asset classes could benefit from the long-term growth of the economy, says Erik Bethkenhagen, press spokesman for the German Association for the Protection of Securities (DSW). Because while individual sectors disappear or are significantly weakened as a result of crises, he considers the economy as a whole to be fail-safe.
However, comprehensive and even global diversification does not protect against price collapses and fluctuations. Because the value of companies on the stock exchange is primarily based on the expectations of investors, who are either more or less confident about the future. A completely crisis-proof securities account does not exist. Investors have to live with the fluctuations.
This can be a lot easier if you don’t keep checking the depot. The psychological pressure to part with shares increases especially when you are repeatedly confronted with new negative records.
That is why Prof. Hartmut Walz advises setting up standing orders or savings plans to match the chosen investment strategy and then only dealing with the depot if necessary. For example, when the ratio of individual securities or asset classes has slipped due to very different price developments and no longer reflects the strategy.
“Then it can make sense to switch from one asset class to another in order to restore the target weighting,” says Jesper Wahrendorf. It’s called rebalancing.
In times of crisis, a look at the past can also be reassuring. It is true that experts do not know when the next upswing will come after a downswing and how long it will last.
“However, history suggests that after every downturn, better times will come again,” says Jesper Wahrendorf. Over the course of a lifetime, investors could weather many so-called bear markets — market declines of 20 percent or more that last at least two months. Provided they stay invested.
Wahrendorf recommends a trick so that the stubborn holding of the course doesn’t feel like a loss of control for investors: instead of saying to yourself that you’re not doing anything, it’s better to say “I’m fighting the impulse to sell everything” or “I’m giving my portfolio the opportunity to make up for the losses incurred”.
So you trust that you can get through all the ups and downs of the markets with the chosen investment strategy. “And that requires mental strength. Be proud of it,” says Wahrendorf.
Basically, private investors should only invest money in the stock market that they will not need in the next ten to 15 years. Anyone who is dependent on the money invested during the crisis runs the risk of being forced to sell securities – and thus possibly incurring high losses. Anyone who can already foresee that they will need large sums of money in a few years should therefore prefer other forms of investment.
