The stock market has severely slumped this week
2014 has been a great year in the stock market. The Standard & Poor’s 500 (S & P) basket of stock of 500 companies hit an all time record this
year when it closed at 2,011 August 26th. However, this week has been particularly bad for the S & P, since it closed today 10/10/14 at 1,906, over 5% down from that high. You could say the ‘Standard” is looking poorly this week.
Another leading indicator is the Dow Jones Industrial Average (DJIA, also called the Dow), a group of stock in 30 large companies. The Dow closed at an all-high time high of 17,279 September 17th, but closed today at 16,544, down about 4% from last month’s high. Likewise, you could say the ‘Dow’ is looking down. Pardon the puns.
Value only matters twice: when you buy or sell something
Many irrational and poorly performing investors, buy when the market is skyrocketing, like it has been doing lately, because they get all caught up in the excitement. Then, they panic, because all of the bad press and negative hype in the media. They sell their stock, stock mutual funds, stock ETFs, and move money out of the stock portfolio in their 401(k). The classic way to lose money; buy high and sell low.
The wrong time to sell an investment is usually after it slumps. Most equity or stock markets recover within months or a year or so. If you don’t have to sell something, then be patient and wait.
The Tortoise and the Hair
This children’s literature is a great model for most investors. Like in the story, the tortoise is slow and steady, non-emotional, plodding along towards his goals, ignoring the emotions on the sideline. The jumpity rabbit style investor, is excited and anxious all of time. Jumping in an out of the market. The tortoise investor buys and holds, and is long-term oriented. That guy usually ends up ahead of the nervous one. That is not to say you shouldn’t ever sell based on some market indicators, or hold on to everything. It’s a general concept of life, and it works in the investment world too.
Stock mutual fund literature
When I was the mutual fund marketing manager for a broker dealer, the mutual fund wholesalers had these great charts they’d show me. On one line was the stock market steadily increasing over the last 100 years. It always had peaks and valleys, sometimes caused by national or world affairs. All the major news events are listed on these chart’s timeline too. Things like all of the wars, big negative events like the assassination of Kennedy, the Cuban Missile Crisis, recessions, depressions, and 9/11. These things affected the stock market, sometime severely, but it always recovered.
When to sell investments
No one knows the best time to get out of stocks; there are no crystal balls or genies to consult. If you need money for retirement, it’s okay to sell a small percentage of your portfolio to make ends meet. Doing that over a 20 year span of time, but only in a couple of down markets from a properly management and good-sized account, probably won’t make you go broke.
Are you close to retiring, or will you need a chunk of money soon to buy something? It may be okay, to plan, save and get out of some funds a little advance of that time, or to lower your exposure to more volatile investments. This could be smart.
In summary, don’t worry, never panic
The worst decisions I have seen people make, is when they are very worried, or have high anxiety. It’s always good to make investment decisions with a clear mind, with lots of advice from your personal financial planner or wealth adviser. Their job is not only to bring you good investment opportunities, but to hold your hand when the market slumps, and to keep you from getting overly excited when things are high. They’ll help you plan your asset allocation changes and withdrawals based on your level of risk, spending needs, and phase of life.
