Don’t Panic!


In case you missed the news the Dow Jones Industrial average had is largest single day point drop today.            

While not its largest percentage drop it was still a hefty drop percentage wise at 4.6%, making it the largest single day percentage drop since 2011. This follows a 2.5% drop on Friday bringing the value of the stock market down more than 7% in two days!

When these market drops occur I will often have people ask me “how much did you lose in the market today.” I can honestly tell them I did not lose a penny, and neither did you as long as you did not act foolishly and just stuck to your long term plan. No one likes to see their investments go down 7% so quickly, but you cannot focus on that. The more you have the more it seems to hurt. If you have a million dollars invested in the stock market (which all my younger readers who follow their plans will have at some point) it can be quite concerning to see the value of your portfolio go down $70,000 in just a couple of days. I wish I can say it will get better right away, but I can’t. While I think this down turn is part of a short term correction that will only last a couple of weeks I have no way of knowing that for sure. It is an educated guess. This could be the start of the next Bear market (generally defined and a drop of over 20% from its high.) Even if this is not of the next Bear market one or more of those will come at some point in your life so be prepared. 

I can tell you that if you have been taking my advice and are investing for the long term things will get better eventually if you simply stick to your long term plan. You probably hear or read many of these adds that warn you of the next market crash and that you should buy their product (usually and annuity or gold) so that you don’t “lose 50% of your money” in the next crash. Then you hear all the horror stories of people that “lost” so much money as a result of crash in the great recession just nine years ago. While it is true the market did drop 50% from its high of 14,164.43 on October 9, 2007 to its low of 6,594.44 on March 5, 2009, it is also true that the only people that lost money were those that panicked and completely pulled out of the market. Those that persevered and did not panic have been rewarded handsomely. In just four years investors that road it out had regained all their value.  I usually recommend not investing in the market any money you know you need in the next 5-10 years. So if you follow that advice you can always ride out a 4 year slump. Form its low in March of 2009 to today the money that was left in the market (and the periodic additions people made at that time to their 401ks) has quadrupled in less than nine years.

So for those of you who are new to the market I know times like this can be scary, but take a deep breath. If you follow you plan and only put your long term investing in the stock market you can weather any storm, whether it is four weeks or four years. Don’t try and time the market. It is not about timing the market it is all about maximizing the time you are in the market. 

Comments

Post a Comment

Popular posts from this blog

Financial Emergencies, Be Prepared

I apologize for taking such a long break from posting, but after all the stories about the number of people living paycheck to paycheck during the government shutdown, I decided to start posting again. If you are a regular reader and have followed my advice you may not need this one, but please pass it to anyone you know that might; because; clearly, there are a lot of people that have not gotten the message. The first post I made on my bog was titled Pay Yourself First . Not doing so is a disaster waiting to happen. It is important you practice this philosophy all the time, not only to save for retirement but also to make sure you have something in case of an unexpected interruption in your income stream or other financial emergency. The economy is rolling along quite nicely at the moment, yet a lot of people still are not putting anything away for a rainy day. I feel empathy for all the government workers that went without paychecks but hope this is a wakeup call for them and f
Read more

Should you ever turn down the opportunity to earn more money to avoid higher taxes?

I am often asked that question in various forms especially around this time of year when people are thinking about their taxes. Sometimes it is a question from someone considering a promotion, new job or simply taking on overtime, other times it is people worrying about making too much money in their investments or their 401K and IRAs growing so large that they will have a “huge tax burden”. Granted our tax code is way too complicated, and many people including some financial planners, don’t fully understand how it affects your investment . I even head a financial planner the other night come up with a cute (but incorrect) phrase, “Your IRA is simply and IOU to the IRS.” While it is true you owe taxes on your traditional IRA and 401k only a portion of it will go to the IRS, less than 40% even with the worst planning. How much goes to the IRS depends on how well you plan, see my next article that talks about reducing taxes through planning.   In the meantime what you owe the IRS shoul
Read more

Are Collectibles a good investment?

I am often asked this question, or put in a position of having to answer this question by people that tell me their collections are part of their investment strategy or estate plan. For everyone that has ever asked me the question or suggested to me that their “collections” were part of their investment strategy the answer was an unequivocal no. Kind of like any luxury, if you have to ask the question you can’t afford it. If you have to ask if your collection should be considered part of you financial plan, you probably don’t understand enough about investing in collectibles to make it a good investment for you. Yes there are rare exceptions of collections that may be considered and investment. The operative word is rare! We will get into what collectibles could be considered an investment shortly, along with some of the pros and cons of that type investment. But investment grade collectibles are not what most people have in their collections at home. So I want to start by addres
Read more