In light of the bloodbath that we’re currently seeing in the stock market, it’s a great time to remember a few important truths:
1) Always remember the Warren Buffett quote:
“Be fearful when others are greedy and greedy when others are fearful.”
It’s much easier said than done, but this idea is so crucial at times like this. And I have to say, I’ve been very pleased with our clients over the last couple of weeks. The overwhelming majority of our folks haven’t been panicking and wanting to get out of the market. The question from most people has been, “Is this a buying opportunity? Should I be putting more money in?”
Almost certainly yes. The clothes that used to be sold at Nordstrom are now being sold at Kohl’s at a nice discount, so it’s a great time to pick up that shirt you’ve had your eye on. Sure, the shirt could eventually move from Kohl’s to Roses where it would be even cheaper, but we don’t know if that will happen or not. Buying it now from Kohl’s is still a good deal.
2) Your retirement plan probably isn’t going to change.
At least that’s true if you’re one of our clients. If you work with us, your plan has been constructed for a time just like this.
If you’re retired or close to retirement, we have some of your money invested in a place with much less risk than the overall market (or possibly a place with no risk at all) so that you still have a place to reliably create income when you need it next month or next year.
If you’re closer to the beginning of your investing life (20s and 30s), this is a great opportunity. All of that new money that you’re putting into your retirement accounts is buying more shares at lower prices, allowing you to reap the rewards over the very long haul.
If you’re somewhere in the middle (40s to mid-50s) we’ve also likely put some of your money in a more conservative place that will allow us to take advantage of the current opportunity to “buy low.”
So no matter where you are on that spectrum, your plan was constructed in anticipation of this type of market event.
3) Market crashes should be annoying, not life changing.
If your plan is constructed as I’ve described in point #2, a market crash isn’t life-changing for you. However, that doesn’t change the fact that it’s annoying.
It’s never fun to see account balances decrease, no matter how solidly constructed your plan may be. So if you know intellectually that your plan is solid, the most important thing to do is guard your emotions.
If it stresses you out to see your account balance decreasing—stop looking at it every two hours.
If watching the news gives you heart palpitations—stop watching it.
If making small talk about the market gives you diarrhea—find other things to talk about.
We’ll do everything in our power to keep market crashes from being life-changing for you. It’s your job to minimize how annoying they are.