September was a great month here in Ireland, it was till bright in the evening after 5 pm, the weather was still warm to actually enjoy outdoor activities, people weren’t in a bad mood because of the all too familiar Seasonal Affective Disorder, and the S&P 500 was at the all-time high of 2,941.
What a few months since!
Christmas has come and gone (I hope Santa was good to you and yours) and we are teetering on the brink of Bear Market territory. The S&P 500 has dropped to a low of 2,399 (at the time of writing) representing an 18.4% decline in just 3 months.
Will we push over the 20% threshold? Well we did briefly stumble over on Christmas eve but after a short lived rally, we are back on the edge. While it is unlikely we will end up in 2008 territory, it is a possibility that the market will dip even lower than the required 20% to call it a Bear Market.
…at the Disco
I just wanted to advertise one of my favourite bands. Panic! at the disco really are under-rated. But how many headlines essentially are summed up in a nutshell by that word “Panic?”
I am new to the world of investing and I must admit this is my first brush with a Bear Market or even more than a minor correction. I first invested in February of 2016 and I have enjoyed nearly a constant incline during that period. It kind of gave me a false sense of security and view of the market. I daresay that anyone who started investing after the Financial Crisis has enjoyed a 10-year bull market and their nerves have not been tested by any major drops.
Do you have what it takes?
Now we can see who we are! I thought of myself as being able to tolerate high to very high risk investing. Therefore, I have all of my portfolio in equities. I am also only 28 years old so I can survive a market crash as I have years to recover.
This volatile market gives us a great chance to see if we have what it takes! When you see that -20%, do you….
- Not bat an eye, an keep on keeping on?
- Think “everything is on offer!!!”
- Worry and fret over the decline?
- Check the handy app on your phone minute to minute waiting for a positive day?
- Completely panic and want to sell before things get worse!
- Regret ever getting into investing?
OK…What should you NOT do?
Option 5 is the definite No-No!
DO NOT PANIC!
Relax, take stock of everything (yes, this is my favourite pun ever!). In an ideal world, you can buy low and sell high, over and over again. Unfortunately, this rarely works long-term, otherwise you would be super famous.
You are better off to wait it out and ride the storm. The market will recover and you won’t lose out by trying to time the market.
What you SHOULD do!
Do not panic!
Stay the course and keep buying shares. You can take full advantage of the low prices while the market is “on sale!” Think of it as 20% off, hard to say no to that deal.
When the market recovers, as it always will, you suddenly have a great positive return on your investments.
Take a look at 2008. The financial crisis scared a lot of people into selling. Even Warren Buffett lost 10’s of billions. The key thing though? He did not sell. Instead, he pumped in more money. If you put €100,000 into an S&P 500 tracker at the bottom of the market in March 2009, that would be worth over €158,000 just 2 years later. Those are insane returns that you would have potentially missed out on if you had tried to time the market.
Well I figured that I am foaming at the mouth at the prospect of a bear market because I want to invest more and more. No matter your feelings, stay the course and don’t panic sell.
You may not want to invest more if you are any of the options 3 – 6 above. But you will only lose out if you panic sell. Stay the course with your current investments and maybe choose something less risky or at least less volatile going forward.
Those of you option 1 or 2 people, like myself, then enjoy this blip in the market. There are many more to come. Also, buy, buy, BUY! Avail of these amazing sales!