Has an Uncertain Stock Market Derailed Your Investing Plan?
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Potential government shutdown.
What, other than politics, do all these things have in common? Strangely, they all share an ability to throw the stock market for more loops than a premiere roller coaster at a Six Flags Amusement park. Truth be told, we’ve been through these ups and downs, twists and turns before (or very similar ones) over the past five years and it never ceases to push the average retail investor to the edge of the cliff with thoughts of jumping out of the stock market altogether.
Newsflash – The Stock Market is Uncertain By Nature
I’ve got a secret for you…are you ready? The stock market IS uncertain. It’s more volatile than a three year-old on a sugar high who has gone a full week without naps. Yes, there are some crazy headwinds right now. Yes, we could see a pullback, but does that mean we should take our ball and go home?
I would argue that we have to stay in the game. Understand and realize that the stock market goes through tumult and unless you plan on robbing banks, there are few other ways to build wealth over the long term.
Don’t Bury Your Head in the Sand
I’ve shared before about my last job in corporate America and that I got to speak with investors on a daily basis as they were jumping out of a sinking ship (or so they thought). Many times their solution was to simply park their money at the bank, which is actually losing them money today, or quite literally put it under their mattresses. I can understand that emotion on one level, especially for those in the Boomer generation as they saw their retirement portfolios cut in half in very short order. However, for many, while staying in the stock market and investing for the long haul takes a long time, burying your head in the sand will generally get you nowhere quick.
I believe the current volatility in the stock market provides a perfect time to look at your investment plan, analyze how comfortable you are with your investments and see where the chips fall. That may mean pulling out of some holdings to capture gains, but that generally should not mean pulling out altogether. What it also should mean is not listening to the investing “noise” of CNBC and the like, but doing what is best for you and your situation.
Look Beyond Today
What is it that you want to accomplish with your investments in the stock market?
I would ask a variation of that question to my clients and many struggled to look past what was currently going on in the stock market. More often than not, they would share their goals with me, but their actions betrayed their statements. With the growing volatility in the stock market this is a better time than not to look at what your goals are and what you’re trying to accomplish. From there you can do such things as:
- Reviewing your risk tolerance
- Rebalancing your portfolio
- Look for other investment opportunities outside the stock market
All of this should be done with a long term view of your investing. Unless you’re near retirement age, you likely have decades to continue to mold your retirement planning and it behooves you to think in that way. Sure, there might be some dips or full-on pullbacks, but in the long range scheme of things, being in the stock market at some level serves you better than running.
Go Against the Grain
“Be fearful when others are greedy and greedy when others are fearful.”
I love this quote by Warren Buffett and it’s the approach I like to take often times with our investing in the stock market. I have one of our OptionsHouse accounts set up to serve this purpose alone. It means that when others are fleeing the burning building, you’re going in to see if there are any survivors remaining. Are you guaranteed there will be some survivors? Of course not. But my unscientific testing over the past five years has shown me that more often than not there will be.
I will warn you though, doing this can require a strong stomach when it comes to investing in the stock market. It’s not for everyone, but if you can stomach the risk then there can be some solid gems to have in your investment portfolio. Even if you do something as simple as increasing your dollar cost averaging it can be a great way to reap some solid long term gains.
However, this all comes with the preface that you have to do what is right for you and your situation and not someone else’s situation. I believe that is what gets lost when it comes to uncertainty in the stock market. The talking heads get on television and they warn that the sky is falling and guess what…people start selling their stocks. Not only does this mean added trading costs, but it also means the possibility of losing out on longer term gains. So, the moral of the story is when you start thinking of the growing uncertainty in the stock market and how it impacts your investing plan and portfolio – look at your needs and not at the hysteria of others.
Does the uncertainty in the stock market have you concerned about your portfolio? What are you doing to not betray your goals?
Photo courtesy of: 401 (k) 2013
John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.
Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.
Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.