Are there benefits to a falling market?

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1280px-NYSE127Recently, we saw a bit of volatility in the stock market. There were multiple days of three-digit drops (and even some days that included three-digit gains) for the Dow Jones Industrial Average.

When stocks fall, it’s easy to panic and get bent out of shape. However, that’s rarely the best way to maintain sanity, or your finances. Rob Berger, writing for Forbes, offers a few benefits of falling markets:

  1. Get more shares with monthly contributions: When you have an automatic investment plan, whether it’s for your IRA or with your employer’s 401(k), your monthly contribution goes further when the market is down.
  2. Better results from reinvested dividends: Berger also points out that you end up with better results from your reinvested dividends in a down market. When prices fall (but dividends don’t), your payouts go much further.
  3. More value from share buybacks: Once again, lower stock prices mean better value for investors.
  4. Rebalance to sell high and buy low: Berger points out that you can sell bond funds (which should be higher in a falling stock market) and use the proceeds to buy stock funds at a lower rate. It’s a good time to rebalance your portfolio when the market is struggling.
  5. Gain some experience: Can you manage your emotions? Are you opening to learning something about managing your portfolio? Berger points out that a down market gives you the chance to learn something about yourself and investing.

So, even though you might be tempted to get rid of all your stocks when things go down, step back and hold your ground. Long term, riding out a market drop (and even bargain shopping) will likely be better for your portfolio.