Equity investors must be able to withstand volatility. In simple terms, is meant by volatility in the equity price fluctuations or -ausschläge, namely upward and downward. Because stock prices do not develop linearly in one direction. The problem for many investors is that they often assess fluctuations wrong and therefore can not stand and react wrongly in the sequence if necessary.
Equity investors must be able to withstand volatility. First of all it must be said that price fluctuations and that these include, upwards and downwards, of exchange trading. So who wants to invest his money in stocks, whether in individual securities or in funds, must be clear that it is never up linearly or will go down. Fluctuations so there will be over and you can ever turn out violently by changes in economic or news situation.
The problem is that no one can say how long and how hard the fluctuations will continue. If the z. B. a one-time decline to z. B. 10% or more follow price drops? And if so, how many? And how long is a possible fluctuation downward (or upward) take? Or is it short again in the other direction?
Many investors can not deal with such volatility and the associated uncertainty. You can, for example interim losses (which have "only" book losses, as long as you do not sell stocks or funds concerned) not stand and be tempted, the papers hastily sell. Finally, the next stock market crash may be behind fluctuations yes hide.
Or the other way round shares will only be bought, if there has been strong upward and thus they are quite expensive. And often draws a "market storm" passing faster than most people think. The problem is: No one knows how to develop the courses in the short term; to too many speculators and other market participants are trying to influence the courses so that they benefit.
In the long term, however, it is so that the rates good companies - move very likely up - under a more or less large fluctuations. Investors should note several rules so that they behave properly with fluctuations:
1. Perform in mind that you do not speculate with your money, but want to invest. This means that you should hold stocks over a long period of well over 10-20 years. So choose carefully and deliberately shares according to the criteria mentioned several times from.
2. Realize that price fluctuations on the stock exchange belong to it and you have to withstand these fluctuations. That's the price if you want to achieve with good stocks or funds for the purchase of an average over a period of more than 20 years a return of 8% or more (price gains and dividends) per year.
3. Use only the money that you do not need a high probability in the next 10-20 years, so that you can "ride out" longer-term fluctuations.
4. Fluctuations affect not all stocks or industries alike. Therefore never invest only in a company or an industry. Pay attention to the broadest possible diversification. Rule of thumb: In individual stocks, you should hold 10-15 stocks from 4-5 sectors. For funds you should make sure that he buys stocks worldwide.
5. Check the quality of the selected shares / funds once a year. If you are further convinced of the papers, you are acting sometimes against the herd mentality. If many shares to sell and decrease the rates, you can even consider whether you not to buy and thus cheaper. Admittedly, this decision to swim against the current, takes courage and it can go wrong once even in good company. Mostly they will be rewarded in the long run by rising prices.
6. If you are unsure in turbulent times and speak most market participants of the next mega crisis: Look again at the long-term charts of the Dow Jones, DAX and Co.. Despite all the crises, these indices - going up - under often violent fluctuations; the DAX with around 8.5% and the Dow Jones by more than 11% per year since inception.
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