Stop Making Everyone Else Rich!
Tips for going through market corrections
History never repeats itself. Man always does. - Voltaire
By the end of this year, we will have completed a full quarter-century of investing in the 21st century.
What a ride it has been.
In January 2000, the S&P 500 index hovered around 1,400. Today, we have already seen the index breach 6,000. The legend Peter Lynch would call that a ‘4 baggahh’.
If you had invested $10,000 in January 2000, it would have grown to $40,658 by the end of October 2024, or $63,761 with dividends reinvested.
A reminder of all the bear markets you had to endure over this time period…
March 2000—October 2002: S&P 500 down 49.1% over 929 calendar days.
October 2007—March 2009: S&P down 56.8% over 517 days.
February 2020—March 2020: S&P down 33.9% over 33 days.
January 2022—October 2022: S&P down 25.4% over 282 days.
Investing is not for the faint of heart. To build wealth over time, you have to accept a certain level of risk and uncertainty.
If you’ve managed to stay invested through all the ups and downs over the past 25 years, congratulations — you’ve likely reaped the rewards of your discipline and patience.
Recently, the markets have been on a strong run, dare I say we are in a bull market??
But this won’t last forever. Inevitably, there will be bumps, crashes, and plenty of reasons to panic in the future.
It’s not a matter of if, but when.
You can study countless charts and review historical data to prepare, but your emotions will still try to take over in the heat of the battle.
Every downturn doesn’t feel great. There is typically a reason the market tanks and often times it’s an event no one saw coming.
And as your wealth grows, the size of your temporary losses will only get bigger…
But remember — the losses are temporary.
Market corrections, crashes, and period of chaos are normal.
In fact, we plan for them.
We expect the market to fall at least 10% once every year and about 30% every five years.
That’s why I laugh at those telling me that a correction, a crash, or a depression (lol) is on the horizon.
It’s like ahh, no shit. Market crashes and downturns are a part of the investing journey.
Understanding this is crucial. Every single one of those market declines has, in hindsight, looked like an incredible buying opportunity.
Not to mention, some of the best days in the stock market occur during moments of chaos, and missing out on those days is a surefire way to destroy your wealth.
You can’t make many guarantees in this business. But I can guarantee you will see your wealth get cut in half over the next 30 years if you are 100% invested in stocks.
It’s easy to make money when the market is rising. But what truly determines whether you become wealthy or are left bleeding on the side of the road is how you navigate the market during its downturns.
Here are a few tips for when we inevitably face the next market downturn:
During moments of higher volatility, take on smaller positions size if you are putting money to work. Dollar cost averaging is a great strategy if you aren’t comfortable investing a large lump sum. Have discipline and create a strategy and stick to it.
Don’t Panic. You have no control over what the markets will do, only how you respond. Do not make rash decisions based on the actions of those around you. Want to go to cash? Good luck. Even if you time getting out correctly, you will have no idea on when is the right time to get back in. Take a breath. Your emotions are probably getting the best of you. There is nothing wrong with standing there doing nothing sometimes. Stay consistent.
Utilize stop-loss order’s, limit orders, or even good-til-canceled orders to help bring control on how and when your trades get executed. Odds are you have a few stocks that you have been wanting to buy. In a down market, this could be your buying opportunity. Provide yourself with downside protection. The markets move at lightning speed now, don’t get caught flat footed.
Remember — often times corrections work in your favor…For all of you rushing to do Black Friday shopping, can you start to bring that mindset over to the investing world? The stock market is the only place in the world where prices get cheaper and everyone freaks out and doesn’t want to buy more. An advantage of keeping some cash readily available is you can move quickly and buy stocks at lower prices during these times. By having your dividends get reinvested, you are buying shares at lower prices automatically…
My personal favorite — shut the f*** up. No one wants to hear that your accounts are down, or that you are doing better than others in a down market. Go for a walk, log off the trading platforms, or go on a date for christ’s sake. Checking your accounts every three minutes doesn’t change anything besides ruining your mental health.
Investing is not a straight line. It’s a journey that often times requires a seatbelt and an airbag.
Prepare for these moments and don’t be surprised when they occur. Even in down markets there are plenty of opportunities and things for you to take action on.
Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly.
All investing includes risks, including fluctuating prices and loss of principal.