Anyone who has watched or invested in the stock market knows that it is not always for the faint of heart. The market has a way of making you really feel good just before it punches you in the gut.
I enjoy watching the daily ebb and flow of the market. I know I’m in it for the long haul. I don’t worry about big drops or big gains on any given day. The dollar amounts can be sizable, but I don’t need that money today. If you are a person who’s stomach turns at the thought of losing the equivalent of someone’s annual salary on a bad day, week or month, then it’s best you focus your attention elsewhere and stay away from CNBC.
The best advice I ever received regarding investing was “never panic”. The second best was a quote from Barron Rothschild;
“The time to buy is when there’s blood in the streets … even if the blood is your own.”
The point of this quote is that tough times should be viewed as a time of opportunity. Sure, losing money sucks!! But what have you really lost? Did someone come to your house and steal your safe full of cash? No! Were the shares of the mutual funds you own swiped out of your account never to be seen again? Not unless you authorized it!
All you have really lost is some of the value pertaining to your shares, which in investing terms is called a ”paper loss”. So why is this not always a bad thing? The answer is because we are investing for the long term. Rough times should be viewed as an opportunity to average down, especially after a long period of gains. If your financial situation allows it, this could also be an opportunity to double down or step up contributions to take advantage of low prices and a market on sale.
Historically the markets recover their losses and then some over a period of time. A great way to increase your portfolio over the long term is to take advantage of these buying opportunities. Whenever the market turns down, I make a habit of telling myself, “Don’t panic; don’t sell with the herd”. Doing that would turn a paper loss into a realized loss. Or in some cases a realized gain and a taxable event. Neither of these are good for long term investing in my opinion.
As we strive to achieve FIRE, there is no doubt we will run into periods where the market is going to adjust and correct. I believe we are closer to that happening than most might think. The market has been on a tear, the economy is rocking and unemployment is at an all time low. It’s all roses right? I don’t think so.
I see an overheated market and I feel like people might be looking for a reason to sell out of it, at least for the short term. The economy is hot, but when the prospect of higher tariffs are raised the market panics, the sale is on. When I feel like people are looking for a reason to sell, its time to take a step back. We are also about to enter what is historically the worst time of the year for market returns.
So what does this mean to me? Not much in the near term. But if the market decides to take a dive, I will be looking to add to the investment side of my portfolio. However, I will not panic and I will never follow the herd. If I see blood in the streets, even some of my own, it will be time to make a move to increase our odds of long term success.
Our goal is to achieve financial independence. This requires us to be forward thinking and take advantage of opportunities when they present themselves. This is how I plan to take advantage of market lows in rough times to ensure the long term growth in our portfolio.
How do you view the market and what adjustments do you plan to make in a bad market? Leave a comment below with your strategy.
Just a disclaimer here. I am not a financial or investment advisor. You should handle your finances according to your own means and personal risk tolerance. I do what I feel works best for us and our finances. You should assess your financial situation and do what you feel is best for you.