The Stock Market is Tanking … Now What?

One of the toughest things in life is to do something that goes against our intuitions. After all, our intuitions help guide us through many important decisions that we make every single day. However, sometimes, our intuitions can be wrong.

One of the times that our intuitions are often wrong is when we are investing in the stock market. We may think that we should sell all of our stocks right before the stock market goes on a five-year rally. Or, we may know that a stock is going to double in value, right before the company files for bankruptcy.

Again, our intuitions are often completely wrong when it comes to the stock market.

For me, I find this to be particularly true. For instance, I was pretty certain that the Dow Jones Industrial Average would decrease when it was valued at 18,000 in 2016. Of course, my intuitions were completely wrong as the stock market continued to increase in value for two more years. Currently, I am almost positive that the stock market is going to decline by 5-10% over the coming year. Although my intuitions may be right this time, they may also be wrong.

However, after reading various financial publications, I have found that most financial prognosticators tend to agree with me that the stock market will continue to decrease. After all, the Dow Jones Industrial Average has decreased by over 4,000 points from a high of nearly 27,000 to its current value of around 22,500. People who talk or write about the stock market say that we need to move our money out of it and into safer investments such as cash, bonds, or money markets. Although these financial vehicles won’t increase in value too much, they also won’t decrease in value (except through inflation).

The only problem is that these financial “gurus” are usually wrong. They agreed with me two years ago and thought that the Dow was going to decrease when it was at 18,000. They also thought that the stock market would fall in 2015, 2014, 2013 …

Do you see the trend? People are always worried that the stock market will decrease.

Of course, we never really know when the stock market is going to crash. We know that the stock market will crash, someday, but we definitely don’t know when. Some people get paid a lot of money to predict stock market crashes, but even they don’t know exactly when it will happen. What we do know is that listening to many of these financial naysayers over the past 9 years would have caused us to miss out on one of the biggest stock market gains in history.

So … if we don’t know what is going to happen in the stock market over the next few years, then it makes sense to just leave our investments alone. If we own 75% stocks and 25% bonds, then we should probably continue to own these same percentages and continue to buy stocks and bonds using these same percentage allocations. We don’t want to make an emotional decision that could cost us a lot of money in the future.

Thinking strictly with my heart, I feel like I should move some of my retirement funds from the stock market to a safer investment. Many people have used these emotions to save a bit of money when the stock market has collapsed in the past. However, what typically happens is that people move out of the stock market after it decreases a lot and then lose money by not being invested in the stock market when it inevitably increases.

The key is to stay invested during both good times and bad times. If we try to time the market, then we need to know both when to get out of the market and when to get back in. We need to be right twice, when it is often extremely difficult to be right even once!

One thing that we know from looking at the stock market over the past several years, is that it is going to have ups and downs. Losing money in the stock market is inevitable, but eventually, those loses will turn to gains as long as we stay invested.

So, what should we do when the stock market is tanking?

Absolutely nothing!

Even though my wife and I have seen our mutual funds decline by over 10% during the past few months, we still maintain our level of investment in the market. Short term, this may make for a bumpy ride, but I bet that we will come out ahead in the long term.

What is your current strategy in the stock market? Let us know in the comments.

And thanks for reading!

~Nathan

Let’s keep living a great life … with the help of money. So what’s next?

• You can travel for free by using rewards credit cards.
• You can get motivated and get out of debt.
• You can check out the next post or the previous post and continue to learn.

But no matter what you decide to do, let’s leave the ordinary behind and take action today!