The major indexes all reversed their course and erased the massive losses from Monday with the S&P 500 remaining nearly unchanged during this volatile period. Instead of rushing to capture some of the losses they incurred earlier this week, retail investors need to be stalwart in their purchases of individual stocks or focus on increasing their monthly allocations of mutual funds or exchange-traded funds into their 401(k) or IRA.
Reacting too quickly after a large market gain can be a foolhardy decision, because too many investors fear missing out on a rally, which proves to be a “powerful bias,” said CJ Brott, founder of Capital Ideas, a registered investment advisor in Dallas and a portfolio manager for Covestor, the online investing marketplace.
“If a person had the mental discipline to have not reacted to this mania, then he or she is probably not too influenced by that fear,” he said. “They should use today to consider buying good quality stocks they have wanted to buy, but missed earlier in this year’s run up.”
A rally in the market is good for long-term investors, but “chasing this morning’s prices” is rarely a good idea, said Brott. Buying in the “mid-day afternoon swoon” is a better strategy, he recommends.