I’m sure you probably are aware of the poor market performance that has occurred over the past couple of weeks. Today the DOW sank 2,000 points, oil prices tanked, and bond yields continued to hit all-time lows. The only issue is, you, like many other investors, might not have any clue as to what course of action you should take in response to the deeply red market that we’ve seen recently.
At the end of the day, there is no clear cut answer, and if you ask pretty much anybody for advice regarding what you should do, they’ll probably tell you the same thing.
Finance and investments are a very individualized thing; some can take on more risk due to younger age or excess capital, some can’t.
Some like to invest for short term growth; some focus on long term dividend-yielding stocks.
Regardless of what your approach might be, here are my thoughts on what went down today.
First things first, markets go up and markets go down. Events like what happened today might be rarer depending on the level of severity, but overall, if you are an investor, you have to be prepared for the worst at all times. If you over leverage your money, if you get greedy and leave the flood goats open, bad things can happen, so always know that something like what happened today can theoretically occur at any moment.
Secondly, having a long term approach will nearly always win in the end. Yes, this is a very cliché outlook; however, it's pretty accurate. Over time, markets are efficient, markets have hiccups, and then they rebound. Outside of a long term approach being valuable in terms of effectively growing your money, it's also a big win for your stress and mental health. If you’re investing money that you can’t afford to lose or if you are caught up digging for short term profits, well, the price of having a short term outlook is the stress and market risk that comes with it.
Finally, nobody, and I mean nobody will be able to predict what happens next. Investing is not a game of certainty; it's a game of probability. If someone tells you they perfectly predicted the market top and sold, then decided to start buying at the exact market bottom, they’re either flat out lying, or they have accomplished something that they will never be able to replicate again in their lifetime perfectly. When markets tank, it's easy to look forward and say that it's too early to buy, but 90% of the time, we are not going to pick the perfect entry price anyways. If you want to take a little gamble, feel free to buy, and if you're going to “sit and wait until the coast is clear,” then you have to realize you might miss out on the potential upside.
The theme of what I'm trying to say here is, investing is like a tough science test. Yeah, it would be cool to get every answer right, but the vast majority of the time, we're probably not going to, and that's okay as long as we’re right sometimes.
Learn from your past mistakes, manage your risk, control your emotions the best you can and realize that regardless of whatever decision you choose to make, there's always going to be a likeliness that it can go the other way.
That's all I have for today and I'll see you guys next time.