The Sky Is Falling! Or so headlines shout. What to do with all this noise about a market decline?
It is your money, so it is prudent to take care of it. As the saying goes, no one will care as much about your money as you do.
Number 1: The first thing I know is that the markets are cyclical.
What is cyclical?
It means they go up and they go down. That means if the market went up, sooner or later it will likely go down. And if it went down, sooner or later it will likely go up. History is full of examples of people who did not sell when the market tanked and who came out ahead. I cannot tell you when or if, but in most of history, things go up and go down and then go up and go down, and so on.
Number 2: Time In The Market Beats Timing The Market.
If you panic and sell when the market declines, you are timing the market.
Don’t Panic!
What is panic? Panic is a sudden sensation of fear which is so strong as to dominate or prevent reason and logical thinking, replacing it with overwhelming feelings of anxiety and frantic agitation consistent with an animalistic fight-or-flight reaction.
What are the key words in that quote? Dominate, prevent reason, overwhelming, anxiety, frantic agitation, animalistic, fight-or-flight reaction. Does this not tell us all we want to know?
Who Causes Markets Decline?
Do you want to know who causes market volatility? The answer is here.
If you sell when everyone else does, it proves you were speculating, not investing.
What To Do?
When the markets decline, if you sell, you lock in your losses. The prudent thing to do is often do not sell.
I cannot tell you what really will happen. But in most cases, things turn around. Some companies will win, some will lose. Some companies will go bust, some will go boom.
What Does A Market Decline Mean?
A market decline usually means stocks go on sale. It is a wonder of human nature that when things go on sale at the super market, people buy more. When things go on sale in the stock market, people sell. Go figure.
What To Do?
Two choices: Buy or Wait. If you have the cash available, then often buying during a decline is the smart thing. Because you are buying more shares at a lower price.
Here’s a sad story. (The original story is no longer available.) An investor sells everything, because the market went down. So he is left with negligible assets.
The prudent investor is diversified, so if some companies do poorly, others often will do well. If the market has a general decline, then it pays to do little or nothing.
What About Retirees?
Yes, when the market decline for new or imminent retirees, things can get troubling. It is possible to start taking out retirement funds during a decline such that the remainder depletes too quickly. That is why using a financial advisor is appropriate. An advisor can help retirees conserve their nest egg.
What do you think? See the Contact page how to send your thoughts.
The post A Bear Market Is Coming! appeared first in Smile If You Dare.