Market declines can cause great angst, uncertainty, and fear.
During these times, maintaining proper perspective is essential to making good investment decisions.
Three Perspectives on Market Declines
Three perspectives I have found helpful are:
- Be prepared for negative news. There has already been talk of a bubble bursting and headlines promoting the “worst ever start” to a year. These kinds of superlative headlines occur frequently, even in years when we have strong market performance. They are not predictive of future market performance.
- Declines are normal market events. Market declines of more than 10% occur frequently. Even bear markets (market down 20% or more) occur routinely. In fact, since 1990 we have experienced seven bear markets – two of which the market got cut in half. Despite these painful, yet temporary losses, the S&P 500 was up 13x during that period.
- Declines provide opportunities. Downturns provide opportunities for investors to sell low or buy low…to their detriment or benefit. These provide wonderful opportunities for patient and disciplined investors to take advantage of the impatience and impulsiveness of others. Continuing to contribute to your retirement accounts is a way to “buy low”, continuing to re-invest dividends before or after retirement is another way to “buy low”, and of course adding cash to your beautifully diversified portfolio is another way to “buy low”.
Stay True, Stay Disciplined
Living through increased uncertainty and declining markets can be difficult. These perspectives can help you think through the situation and remain true to your investment plan. And if that doesn’t work, you can always choose to not look.
– Kaleb Paddock, CFP®
You can learn more about Ten Talents and Kaleb Paddock, a financial advisor based in Parker, Colorado, by clicking here.
Kaleb can be reached at (720) 710-0939 or firstname.lastname@example.org.
©2022 The Behavioral Finance Network.
Past performance is no guarantee of future results. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly.