As you know, I never make predictions or projections. My belief with investing is that we stick to our plan and make minor adjustments as it seems fit given the circumstances.
In March we experienced a significant sell off. The stock market lost about 35% of its value in a matter of weeks. Since that point, markets are up roughly 20%.
This is a reminder that the stock market does not always move based on the news. It moves based on expectation and emotion – which is why it is so hectic. Today we may feel good and expect a quick recovery and tomorrow we may feel bad and think we are heading into a depression. The key thing is that we do not make financial decisions based on our feelings nor do we make them based on stock price movements alone.
I have no clue where we will go from here. And anyone saying otherwise, no matter how much confidence he/she has, is to be ignored. I put my years of experience and learning to work for you at this time with the following three points:
Three Things To Do Now
1. The best thing you can do now is mentally prepare yourself that stock markets may go down to prior levels or even lower. It’s not that I am expecting it to happen, but it is within the realm of possibility. The best thing we can do is acknowledge what is possible so we are less likely to react hastily. We are in uncertain times with significant damage done to the economy in the short term. We don’t know when we will get through this or how long it will take. But we will get through this. Prepare yourself that it may take longer than any of us would hope.
2. If you find your mood is affected by stock market performance, then don’t look. Turn off the financial news and don’t look at your statements. This will pass eventually, but we don’t know what the ride will look like as we work through this.
3. Trust your plan. You have a sufficient amount in safety assets which I call dry powder (bonds, cash, annuities, bank account assets) to ride through whatever difficulty may come our way. Future low prices are opportunities to buy additional high quality companies on sale. Buying low can improve your long-term performance without having to take additional risk.
As always if you have questions, I am here. Please schedule a meeting with me if you have any concerns or questions. Kudos to each one of you! Most of my conversations have been about buying points – which is what we should be doing when the stock market declares a sale. There will be more in the future; it’s incumbent upon us to be mentally prepared to take advantage of such sales.
©2020 The Behavioral Finance Network. Used with permission.