Declines in the markets may be frightening to many who do not view their investments in the proper perspective. Many have a short-term mindset and think they are “losing” their money because the markets have dropped temporarily and then, what do they do as they refresh their online portal for the hundredth time that day? They panic and sell, which could be a mistake that could be damaging to their long-term financial success. If you have made this mistake, you are not alone. What should one have done in that situation? Embraced the decline and stayed in the market.
If you look back since World War II, the markets have:
- Declined an average of almost 14% annually1
- Declined on average between 15-20% one in every 3 years1
- Declined on average over 20% one in every 5 years1
Even with the markets historically going through the above declines, it has not only recovered to previous levels but has historically reached new highs1.
If you have the mindset of a long-term or even multigenerational investor, these declines should be viewed as an opportunity. Why? It is an opportunity that will allow you to add to your diversified portfolio at a lower price (which in other aspects of our lives would be viewed as a good thing, getting something at a lower price). No one says, “Oh, I better go buy more because the price just went up.” However, for some reason in investing everyone wants to buy more when the market is up.
I am not saying that you should try and time the market, because in my opinion, it cannot be done. I am saying that if you are consistently adding more to your portfolio (like in your retirement accounts) or if you have a long-term age-specific financial plan, you should be welcoming the decline. For most people, this can be a difficult thing to accept and embrace on their own. However, I believe that working with a CERTIFIED FINANACIAL PLANNERTM professional can make it easier.
This person will not only help get you through the market declines that we will inevitably face, but they will also be able to help manage your natural emotions and help you stay on track. How will they do this? By showing you your ongoing and ever-changing financial plan. This will allow you to see how panicking will affect your long-term plan and delay or even eliminate some of the goals you have in retirement.
So, the next time you see the markets decline, know that historically this is a normal event. Know that panicking could be detrimental to your long-term success. And lastly, know that if these declines keep you up at night, there are CERTIFIED FINANACIAL PLANNERTM professionals like myself who can help. Ones who will work with you to keep your emotions in check and help you as you approach and make your way through retirement.
- Siegel, Jeremy, Stocks for the Long Run, 1994
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