If you ask me if the stock market is safe, I must tell you that it depends. If you are investing for short-term results, it’s not safe. But if you are investing to reach long-term goals, yes, I believe it is.
But either way, I’ve got some very important money management advice for you — don’t react emotionally to the huge rally today or any other day for that matter.
We are in the middle of a financial storm so it’s really important to take a sober, adult approach. As much as we all want this nightmare to pass, I just don’t think it’s in your interest to react emotionally to anything that happens in the market. Even when it’s good news. ( And even in this tough patch, there is good news. Ask yourself, “Should I refinance my mortgage?” If you review current rates, you might just cash in big-time on some savings!)
The S&P is down over 50% from its peak on 10/31/07, depending on what time of day you look at it. And if you haven’t been emotionally impacted by that — check your pulse…you might not be alive anymore!
Sure, you’re feeling it. You’re feeling the insecurity of your investments and maybe your employment too. But just because you are feeling it doesn’t mean that you should let your emotions take control of your ship. Don’t throw the towel in on bad days. Don’t invest super-aggressively just because the market had a good day either.
Remember, you are a Wealth Pilgrim. You steer your own ship. The ship doesn’t steer you!
So let’s look at the facts. The longest it ever took to recover from a bear market was 69 months. The shortest was four months. Does that mean the market will recover in less than 69 months? No.
But it means that history and the facts are on our side. Also, according to a new U.S. News and World report, the recent market meltdown may impact you less than you think. According to the article, if you are 40 years old and you save 7% now, you only need to save 1% more each year or work one extra year in order to recoup your losses in 2008. If you are 55, you’ll have to save an additional 12% or work two more years to recoup your 2008 losses. Also, there’s always the possibility of landing part time work to bring in a few extra shekels too. Either way, not a huge deal. If I know how much money I need to retire, I may realize that the current market turmoil isn’t really my biggest challenge.
If you’re already retired, this is even better news. When your kids come looking for their “bailout” package from you, show them this article and tell them to get back to work! I just saved you a boat load of money!
All kidding aside, if you believe that the market will be higher five years from now, you shouldn’t sell your equities. If you don’t believe that the market will be higher five years from now, ask yourself another question.
When will you need the money? Even if you are retired and taking distributions from your account, you probably want those distributions to last at least another 10 or 20 years. At the end of the day, more people pull out of investments because of their emotions than because they need the money. And I believe that if you invest based on your emotions, your nightmare may get worse.
Has your stock market nightmare impacted you? How? What’s the best tip you can give us to reduce anxiety now?