Well, unless you’ve been under a rock, unplugged your TV, disconnected your internet, or were briefly abducted by an alien lifeform, you’re likely aware that the stock market is having a rough time. Some might say we’re in a down market, some might say bear market, some might say all out bloodletting. No matter how you slice it, if you’ve looked at your portfolio lately, you probably have less money than you did at the end of last year.
So, what shall we do?
There are 3 options as I see it (in no particular order):
- Something that helps.
- This usually involves some sort of selling your investments so that you can be in cash and have the peace of mind that you can’t lose money in cash (more on that in a moment.)
- Perhaps said a better way: Hold. Or better yet: Do nothing.
And sometimes…all three.
As for the first one, a bit of a joke, and hopefully not one you would succumb to. But if that’s your preferred option, please make haste to your Financial Advisor to let them wipe away your tears. They are being paid a fee to help you through times like these. This is when they earn their pay.
As for the second one, not a joke. Many surrender to this option as they see their hard-earned money dissipate before their eyes. But is selling really a good idea? Does cash compound wealth over the long term? Short answer: no. Long answer: Heck no. Ever heard of inflation? It’s the definition of the loss of purchasing power. You see, your cash can’t keep pace with the increase of the price of things. In fact, inflation is part of what’s causing this big issue to begin with. Selling stocks to go to cash is guaranteeing a loss. Holding cash is guaranteeing a further loss. To wit, inflation has been tracking north of 8% this year. So, your cash position is down by the same amount.
As for the third one, yep, my preferred option. A fun option? No. A feel-good option? Absolutely not. The correct option? Yes. This apocalypse du jour will indeed play itself out, as have all the countless other ‘crises’ that have gone before it. It’s impossible to know for sure when, let alone how, this problem will be solved, but for those who’ve been reading my content for long enough know, I believe in the power of human ingenuity, our ability to solve problems, and I have an undying belief that the best is ahead.
In the meantime, the financial media will persist in reporting this as an unprecedented crisis in the economic and financial life of the world. They will proclaim it is unsolvable. All to keep your attention, and in so doing…sell more ads. Do they truly have your best interests in mind? I think not. Unsolvable? This can’t be true…and this, gentle reader, is why Option 3 is the answer.
As difficult as it may be, now is the absolute time to take our focus off the onslaught of catastrophic headlines and put your eyes on the prize:
- Your goals.
- The long-term plan to achieve those goals.
- Well, there is no 3. See the first 2 and put a big period at the end.
We don’t invest in stocks (which represents ownership of a company) as a speculation on the outcome of current events. Rather, we invest in well run companies which produce and provide goods and services that promote better living, working and recreation.
I can hear it now. A resounding… “But this time it’s different!” It is echoing through the information superhighway, clogging the replies to my blog post, infiltrating the comments on my Facebook page.
Suffice it to say, those 5 words are the most dangerous words in investment history. The patient compounding of wealth is created by investing in well run companies and ignoring the crisis laden headlines. It’s never different. Crises come and go. My response… “This too shall pass.”
We are human, and as such, are prone to fear. Fear, quite honestly, is a natural God-given response to bad situations. It’s ok to be afraid. But, gentle reader, let me encourage you…do not give in to the fear.
Choose Option 3. Look forward to the horizon. Believe in the power of compounding wealth. Don’t give into the fear. Believe in the power of humanity to solve this. It’s not if, but when. The best is ahead.
This too shall pass.