What a wild ride, huh? Last Friday, we got news of a 531 point dip in the Dow. Yesterday it opened to 1000 “swan dive” as one news outlet put it. You see headlines such as “Markets in Turmoil” and “Market Roller Coaster Ride From Hell.” It’s enough to make even the most sensible investors doubt themselves.
Thankfully others are cautioning to take a breath and do nothing. Those writers understand that this is what markets do. They go up; they go down. And instead of panicking, you should continue to think long-term.
What I love about times like this is that they offer perspective. Remember when you said you weren’t afraid of taking risk with your investments? Well, here’s your chance to prove it. How do you feel now?
When I try to explain to clients, friends, and even my husband that investing is a marathon, I use the Great Recession as a fresh memory of why you need to stay on the course and keep running.
On October 9, 2007, the Dow had reached a high of that time of 14,164.63, only to plummet to a low of 6,594 on March 5, 2009. (More perspective: The Dow closed at 15,871.35 yesterday). From that low in 2009, we saw a record high this year 18,312. (If you’re confused by what these numbers mean, you should read this and comeback.) Had you continued to invest the entire time, you would have made more money than you lost.
And it’s not just the Great Recession when this type of market mayhem has occurred. Manias have been happening for centuries! In his book, The Four Pillars of Investing, William Bernstein gives a fantastic history of market bubbles starting in the late 1600s and continuing through this century. The cycle has repeated itself and will likely continue to do so.
Overall, investing in the market has provided a benefit to investors the majority of the time. However, you do significant damage to your portfolio if you miss even the smallest number of the best recovery days. Younger investors should rejoice that the money they contribute now will buy more than it has before. And older investors can take solace in the fact that they have scaled their asset allocations to something that isn’t as affected by the market’s current volatility.
So yes…take a breath. Also take stock of how this recent plunge has made you feel. There’s nothing wrong with fear or trepidation, as long as you can keep perspective and stay on the investing path that you intended.