What Do Tough Times Mean for Individual Investors?
I'm reminded of a well-known quote by Mike Tyson: "everyone has a plan until they get punched in the mouth".
So what the heck should an individual investor do when the market is volatile or in a rapid descent?
To start, review your reasons for investing in the first place. Have your goals – the things you hope to accomplish by investing – changed, or are you still in pretty much the same boat? Has your time horizon – the amount of time you expect to hold your investments before using that money – changed substantially? Did you decide that you can retire in the next few weeks, or is that still years or decades away?
Next, review your methodology. Do you make regular, monthly purchases in a retirement or brokerage account? Do you follow companies, industries, and trends over weeks and months before buying or selling? If you have a sound strategy for choosing investments based on your goals and time horizon, it may be that your strategies are correct even if the current situation is unpleasant.
Finally, remember the old adage 'this too shall pass'. When we zoom in on investment performance, it can seem like a jagged edge – up here, down there, always changing and unpredictable. However, when we zoom out and look at the big picture, we see that past market drops and recessions barely register compared to market performance over decades. Try to remember that past market drops appear – in retrospect – to have been opportunities and that current drops, bear markets, or recessions are no different. This too shall pass.
If your goals and time horizon have not changed and your methodology still makes sense, the most solid advice is: keep doing what you have been doing. It's not exciting and won't make lousy news turn into sunshine, but stick with the plan that made sense before you got punched in the mouth.
Any ding-dong can succeed when things are easy. It's when things become difficult that real success is measured.
Iseler Financial, LLC | Registered Investment Advisor | Durham NC