06 Dec The Roller Coaster Effect: Investing in Turbulent Times
Written by Matt Wegner
Founder and Lead Counselor, Matt Wegner Coaching, www.financialexcellence.net
It is definitely a scary thing to see your life’s savings drop by 30% or more. Percentage wise, we’ve seen worse but it’s still a heart-thumping ride. In fact, while we’ve had record drops in the market (points wise), we’ve also had record gains. Having a long term investing strategy can help you weather investing in turbulent times, ignore the day to day turbulence, and look for opportunities in the so-called time of crisis.
The truth is, now is a really great time to invest. With the recent drops, stocks are on sale at extremely deep discounts. While market analysts and “experts” wail and moan about the end of the earth when the market crashes, smart investors start buying more stocks. They know that a crash simply means the market was inflated and is going through a correction period. You see, throughout the market’s history, every ten-year period has made money. They also know that the ten- and twenty-year periods following major “crashes” have made lots of money. Looking back at actual market data since its beginning, simply investing at the low points of the crashes and holding the investments for 20 years would have yielded returns of up to 900%! Sounds unbelievable but it’s true. So what is that telling us? Now more than ever is when we should be buying instead of panicking and selling. You can learn more about historic crashes in the stock market’s history (and the returns that followed) in this article from the Wall Street Journal.
Of course, if you have debt you should eliminate that first to free up cash flow in your budget to invest more effectively. Now is a great time to eliminate debt. Now is also a good time to have money set aside for emergencies.? In fact, anytime is a good time to eliminate debt and save for emergencies.
Even better, the market has had a major crash (again, I prefer the term correction) more than 20 times in the last 200 years. That’s an average of one crash every 10 years. So if you’re still working on eliminating debt and have little cash to invest, be patient and stay the course with your plan. You’ll have another opportunity to buy stocks on sale in a few years.
Mature investors keep their eyes on the long term goal. Develop a strategy with a long term focus and keep plugging away. Ignore the short term distractions and take advantage of opportunities that support the long range focus. Remember, the tortoise wins the race. Every Time.