Holberg Financial Blog

The 4.0% Stock Market Decline Means Nothing (in the long run)

Posted by holbergfinancial on February 6, 2018

Every time the market goes down my inbox explodes, my phone buzzes, and my ears tingle with the sense that people are fretting about their IRAs, 401ks, and investments. 

"Should I be concerned?" is the main chorus that veils the real question just below the surface: "what should I be doing?"

In one word: nothing.

Post is done. No more to say. See you next time....

Alas, a tiny bit more of an explanation needs to be rendered.

Investing, especially for retirement, is a long run game. The vast majority of people are not (or at least shouldn't be) buying and selling frequently. The best retirement strategy is to buy and hold since the stock market has, on average, for the last 80+ years returned ~8%. Trying to be smarter/better/quicker/whatever than the market has repeatedly been proven to be a fool's errand and those that trade and make decisions based on the nightly news, what they see online, or based on their gut tend to be making emotional, irrational decisions that don't pan out. 

So how can you justify holding steady when the winds whip up and the stock market falls? Easy:

Think about going shopping. No, I don't mean go shopping. I mean think about it.

If you walked into, say Target, and you saw a bunch of signs up all over the store - big yellow and red signs that are practically screaming at you - Discount! 25% off! Marked down! On sale! Would you freak out and run out of Target? No, you wouldn't. Instead, your heart would pump a little faster and you'd be scurrying all over the store looking for the best deal, the cheapest pair of pants, an on sale laundry basket to replace the once that's too small since you hate doing laundry (we all do). Why would you race all over the store? Because everything is on sale.

It's so obvious it hurts, right?

But, here's the kicker - the stock market is just like that. When stocks tumble, as they did at the end of last week and yesterday, virtually the entire stock market went on sale. Everything is relatively cheap compared to what it was before.

And just like shopping at Target, when things are on sale, you don't run from investing in retirement, you don't turn the other way and sell your stocks or your ETFs or convert everything in to cash - you actually want to buy more, tough as a pill as that is to swallow. If you've got cash laying around that you were considering using for long-run investing, when the stock market declines, it's the perfect time to invest and get your money into use since you get the investments that have gone down with the market at a discount.

It's certainly not what Crazy Cramer is yelling on CNBC and it's not what is hitting the headlines on the NYTimes, Fox, or any other media outlet - conservative or liberal - but it's the rational, forward-looking, and long run decision that will help you stay the course, continue to build your investing and retirement savings, and it'll have the added bonus of avoiding the folly and the ill-conceived mass belief that when the stock market goes South, that you should run North for the hills and sell everything you have.

 

 

 

 

Disclaimer: none of this information should be construed as investment or financial advice. Consult a professional for specific guidance and advice. Past results do not guarantee future performance. Additionally, performance data, in addition to laws and regulations, change over time, which could change the status of the information
in this blog post.

Image: screenshot of the nytimes.com homepage. Accessed on February 7th, 2018 at approximately 7:56am Central Time.

 


 

 

 

 

 

 

 

Topics: Stocks, Stock Market, Retirement, Investing, Dow Jones, 401K, IRA

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