Take the emotion out of it and hold steady.
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When the market surges, it is easy to get caught up in the financial frenzy and be tempted to sell your stocks that are up. But financial guru and star of ABC’s “Shark Tank,” Kevin O’Leary, has different advice: Take the emotion out of it and hold steady.
“Sometimes, there’s exuberance in the market and investors are willing to pay more, sometimes when they get concerned and they’re risk averse, they want to pay less. That’s called volatility,” O’Leary tells CNBC Make It. “Very often, this is an emotional decision.”
But “You shouldn’t try and time the market,” O’Leary says. “When the market soars, it’s not necessarily time to sell. When the market collapses, it’s not always time to buy.”
Instead, says O’Leary, “Take a small portion of your income every month and invest it. That’s averaging in. That’s the idea.” O’Leary suggests investing 5 to 10 percent of your income.
He says what everybody should understand about the stock market is that “it has its own forces at play; nobody can control it. Every day, the world makes decisions on what they want to pay for any stock.”
That can be maddening, O’leary says, but it’s not something to be too concerned about because companies and the economy ultimately grow over time, and so will the market in the long term. Indeed, the S&P 500 index has earned an annual average return of 9.8 percent over the past 90 years.
“Price swings of up to 30 and 40 percent are not uncommon in the stock market when you look over 100 years of history,” O’Leary says. “So when you see a violent day where the stocks go down 5 or 6 percent; get over it. It’s normal. In fact, not having volatility is not normal.”
That’s why investing regularly is important.
“Sometimes you’ll buy stocks and they’re very cheap. Sometimes you’ll pay more for them,” he says. “But if you’re averaging over time, that’s a very good long-term strategy.”
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Kevin O’Leary: This is what you should do when the stock market surges | CNBC Make It.