Yesterday we witnessed the biggest decline of the Philippine Stock market since 2008. All the gains we made from the past two months were all wiped out. It seems as though the market is still continuing to decline further down.
For those of you who are now worrying about your investments turning red, you are probably asking yourself whether you should cut your losses, wait it out, or continue investing. Your decision depends on a lot of things and one important factor to consider is your investment horizon.
Your investment horizon affects how you perceive rise and declines on the stock market. If your investment horizon is short which is around a year or two, you will probably look at declines on your stock as a loss. Most people with short term investment will probably panic and make the decision to sell and cut their losses and some will even sell at a loss.
Although declines on the stock market are losses, your investments won't actually lose unless you decide to sell during a decline. These losses are merely paper losses and if you decided to wait it out, you will eventually regain those paper losses.
If your investment horizon spans ten or more years then these declines on the market won't cause any panic for you. Some investors with long investment horizons even look at declines as opportunities to buy stocks at a cheaper price. A long investment horizon allows these investors to take advantage of market declines and buy more shares when others are busy dumping theirs at a lower price.
If you bought shares at the beginning of a market decline, investing more while the market is continually declining will spread your paper loss and will hasten the time it will take for you to recover those paper losses. Just remember, the longer your investment horizon the safer it is to invest on stocks.