If you think the recent stock market correction is terrible, you’re right. Watching your net worth decline by close to 20% in a couple of weeks is no walk in the park.
But take a brief walk with me down memory lane and look at a bit of my work history. Maybe it can provide a little perspective that will help you make better decisions.
When I became a stockbroker in 1981, mortgage interest rates were around 17% and insured money markets paid 20%. Nobody was buying stocks.
During my first year in the business, the market dropped more than 20% — and that was just the first of several corrections and bear markets I’ve seen while working on Wall Street and in personal finance:
- I was still a stockbroker in 1987, when the market plummeted nearly 23% in one day: Oct. 19, 1987, otherwise known as Black Monday.
- I was offering market commentary on the Cincinnati Fox affiliate during the dot-com crash of 2001-2002, when the Nasdaq composite index fell by around 76%.
- I was offering market commentary on the West Palm Beach ABC affiliate on 9/11. On the first day of trading after the market reopened, it fell about 7%.
- I was working right here at MoneyTalksNews.com when the Great Recession struck. From Oct. 9, 2007 to March 2009, the market lost around 50%.
And now here I am, nearly 40 years later at the age of 64, watching my retirement savings get sliced by 20% in less than two weeks.
So, what have I learned from these decades of periodic financial carnage?
One thing I’ve learned is the U.S. economy and stock market are resilient. When I started as a stock broker in 1981, the Dow Jones Industrial Average was at about 1,000 points. Until this recent pullback, it was approaching 30 times that level. Despite all the setbacks, good things come to those who wait.
Another thing I’ve learned: Don’t try to time the market. Even when I see potential trouble ahead, I’m not smart enough to get out at market tops and back in at bottoms. So, staying invested, at least partially, is the only strategy that makes sense.
Finally, I’ve learned that when you’re freaking out and the urge to sell becomes nearly irresistible, you’re probably approaching the time to buy. From an article I wrote called “The Golden Rules of Becoming a Millionaire“:
“The cyclical nature of our economy all but ensures bad times will periodically occur, and human nature all but ensures that when bad times happen, most people will freeze like a deer in the headlights. But downturns are the time you’ve been saving for.
If you think the world is truly ending, buy canned food and a shotgun. If not, step up. As billionaire investor Warren Buffett famously advised, ‘Be fearful when others are greedy and greedy when others are fearful.'”
That’s why I was buying in the depths of the Great Recession and why I’m currently putting together a shopping list.
Bottom line? I wish I knew how to protect you, and myself, from wicked market corrections like this one. Alas, I can’t. But I can offer you the following time-tested advice:
- Buy when things look like they can’t get worse. (That isn’t now. Things can definitely get worse from here and, in my opinion, likely will.)
- Unless you must, never sell when market declines are leading the news.
- If you end up selling during declines because you can’t emotionally or financially deal with a decline, that’s proof you had too much money in the stock market. Learn from that mistake and don’t repeat it. (Here’s my advice on how much to have in stocks.)
- Pay attention to the news, but not too much. Be interested, but not obsessed.
- Both declines and recoveries last longer than you think they will. Patience pays.
- Listen to experts, but not blindly. Nobody’s right all the time and nobody knows the future.
- Always keep some money on the sidelines. You never know when the bargain of a lifetime might present itself.
So, there you go. Sorry I don’t have a magic bullet, but if you follow this advice, you’re almost guaranteed to be a successful investor. It’s been working for me for 40 years.
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