If this headline peaked your interest, it’s not unfamiliar to find this type of post on the popular finance sites – But what does a question like this represent?
In order to frame up why a question like this is asked, we can look into the past 2 week performance of the stock market as a whole (See above) – Wow, what a volatile time for investors!
Given this recent erratic trading history, we will be drawing similarities to a roller coaster ride – Massive moves down and equally massive moves up; where it stops in the short term is anyone’s guess.
If we look into this question further, we see that the expectation of being able to predict the world events, create order and ultimately predict the future is inherent to our nature – We try to control our external circumstances, no matter the size or complexity.
When it comes to the stock market, this is no different and is slightly magnified as we have a vested interest (due to actual money invested) in seeing success over time; this is exponentially more unnerving due to the larger and larger amounts of money that can be invested.
However, there is a good reason for optimism, if we only need to look to the recent past for reference, we can see that other world circumstances have transpired that caused large swings in market value but the markets have always been resilient and improved over time.
Based on Invesco analysis, we can see that the average “bear” market condition was approximately -35% for a period of 12 months – while the “bull” market condition is +150% for a period of 6 years.
How do you react to this situation?
So now that we have some facts laid out, what are our options as investors – See the options and details below.
Option 1 – “Sell Everything”
If we subscribe to this option, we are immediately participating in the current mass exodus from the stock market. This option is completely opposite to the investor mantra of “buy low and sell high” – While this is satisfying short term to our emotional state, ultimately selling now will “lock in” your losses and take our paper losses and realize them into actual lost value of investment funds.
Part of the hysteria is due to the investment media who do not help the investing community overall – They sensationalize the downturn days on the market, without any acknowledgment that there will be again up days. Remember, after the storm the sun will come out again!
Option 2 – “Hold Fast”
This second option is truly difficult, staying put and doing nothing while it appears that the sky is falling and the investment world is on fire.
However, sometimes the best course of action is to do nothing – truly difficult when the traditional investment media is sensationalizing the daily losses. Stand fast against your emotions and fears; don’t act on them! It’s human nature to try to try to make sense of our environment and control factors that are ultimately beyond our ability to exert influence – Stand your ground, hold your emotions in check and wait until the ride has come to a complete stop.
Option 3 – “Hold & Buy More”
The final option is a hybrid of option 2 plus a counter intuitive action – Not only hold fast, but actually participate more! This may seem completely off the mark when the markets are declining but actually this option uses the negative opportunity of market declines in order to strengthen your investment positions.
This will improve the quantity of investments that can be purchased for a fixed amount, improve your overall portfolio strength and provide additional dividends! Overall, make sure you are buying quality investments with intrinsic value during these downturn periods.
“Life is 10 percent what happens to me and 90 percent of how I react to it. “Charles Swindoll
Keys to remember during volatile markets
- Keep your fears in check – Remember the only people that get hurt on a roller coaster are those who jump off mid ride!
- Ensure your portfolio is well diversified – See here for our thoughts on this; this should smooth out the bumpy ride.
- If possible, hold and buy more – Use the additional power of sinking asset values to purchase more investments for the same investment dollar – See option 3 above.
- Do Nothing – Sometimes the hardest move is going to be to do nothing at all – Wait out the storm ⛈
Good luck out there – We’re all in this together!
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