Is It Time to Panic Yet? (What to do when the Market is down.)
Short answer: No.
A couple weeks ago, I wrote a post about what to do when the market is down. Since that post, the market has continued to drop, causing many people to feel concerned, if not downright panicked.
My opinion hasn’t changed: steady on and find something else to distract yourself from the inflammatory media reports.
I’ll offer up a bit of a simplified explanation about the markets to help you understand what is going on. I’m referring to the U.S. markets, although I suspect global markets all work much the same way.
The market moves due to two main forces. The first is economic conditions. The underlying economy in the U.S. prior to the Coronavirus outbreak was stable. Not awesome, not on fire, but steady and on a low simmer. It’s true that the economy was overdue for a recession, and it was overdue for a market correction. Those statements are based on the history of market behavior, and when it comes to the economy and the markets, history tends to repeat itself.
The second way the markets move is based on reactivity (emotions, in a sense). The market behaves based on expectations. When the market gets what it expects, it tends to grow steadily. When something unexpected happens, however, it can react negatively. Or as I like to say, it freaks out. It’s important to know that the market very often OVER-reacts.
It is fair to say that this COVID-19 outbreak is the “black swan” event that we’re hearing about with regard to the current market volatility. A black swan event is a rare, unpredictable event. Market analysts often will couch their assessment about probable market movement by saying something like, “unless a black swan event were to occur.”
Depending on who is talking, the COVID-19 outbreak was far from unpredictable. Instead, it was something we should have been expecting and prepared for. Be that as it may, to the masses in this country, it seemed to come from left field, and its swift escalation has caused the market to, well, freak out.
But the fact remains that over time, the stock market goes up. Full stop. *
Yes, of course there are periods of volatility, and of course we can and have experienced extended periods of time of down markets. It’s not pretty, and it is stressful for investors. But you can save yourself a bunch of grief over market volatility if you just pull up a chart of market history. You’ll quickly see that over time, the market goes up. Even after bad things happen, the market rebounds and goes up.
If you want the best possible chance to meet your financial goals, you will likely need to include some stock investments in your portfolio. Here are the behaviors that will help you be successful:
- Determine how much volatility you can stand without freaking out and selling when the market has a bad day (or week, or month, or year).
- Invest regularly and without emotion.
- Don’t let greed or fear be the driver in your decision making.
- Stay on your chosen course and don’t spend time being distracted by the media noise.
There you go – now go hug your family, count your blessings, and find something more rewarding to think about. Worrying does you no good.
How are you handling the current global crisis? I’d love to hear about it. Simply hit reply and tell me all about it!
You can also share your thoughts in the SimpleMoney Facebook Community, where you will find like-minded friends to discuss money and simple living.
You might also enjoy:
“The four most dangerous words in investing are: ‘This time it’s different’.” ~ Sir John Templeton