Five Reasons to Stay Calm When There’s Stock Market Drama

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Is the glass half full or half empty? While you decide, I think I’ll drink up all the water in the glass.

Before you knee-jerk react to this sell off in stocks, consider this:

  1. China’s black Monday was not a big surprise. Those who pay attention have watched growth rates in China slowdown for years.
  2. It was only a matter of time. Normalization of the markets was expected and overdue because the stock market is supposed to care about risk, and declines must happen and are healthy in order to break the ‘no-risk’ return perception.
  3. Your financial advisor should tell you that the stock market is the only market where when everything goes on sale, everyone runs out of the store.
  4. Stock market shocks (and corrections) happen when you least expect them. That’s why they call them shocks.
  5. Stocks don’t go up or down in a straight line and sell-off’s of 10% happen in every type of market. It’s been four years since the last real correction.
The urge to ‘do something’  can be powerful. You have to vote with your money but the time to cast that vote and manage risk is beforehand, when things are calm, not after a dramatic downturn. 

5 Comments

  1. Liz says:

    The urge to jump ship was tempting and fear driven, until I read this article as Pam started channeling what my deceased father (an avid investor) would have advised. I’m sure everyone in my pre-retirement age group (and others) are extremely concerned. I’m sure this will be the topic discussed at many dinner tables over the coming days. But, as was discussed in item #4, as panicked investors began to sell today, did people take note of the buyers picking up on the bargains?

  2. Cynthia Osterman says:

    Pam, thanks for this article. These are really good reminders. As I watch the market zigzag, I keep coming back to them to help me keep a level head.

  3. Cindy Baron says:

    Thank you, Pam. Reassuring words during difficult financial times!

  4. JOHNPAUL says:

    Where is the safest place to put your money for safety purposes and where is the safest place to put it for profitability

    • Pam Krueger says:

      Hi JohnPaul,

      Safe means 100% insured which means ultimately US gov’t backed, banks that are FDIC insured offer certificates of deposit that pay interest where you earn higher returns for longer holding periods. Money Market accounts are also cash-like along with US treasury bills, notes and bonds. You’re taking zero risk, therefore, you earn a risk-free rate of return which is always very low compared to other investments. Over time, however, risk-free may not be entirely risk-free in the sense that if your money isn’t growing, you do subject your savings to a different kind of risk– inflation. if the interest paid on your risk-free savings doesn’t rise with the rate of inflation year over year, you could watch your savings slowly erode. But in terms of ‘credit risk’ those are the ‘safest’ options. The question of how to get the absolute best of both worlds– safety plus a nice return on your money is the quest upon which the entire investment industry is based, and yet no one can provide the one-size-fits-all ‘perfect’ answer. This is why index funds and ETF’s have become so popular because they take so much of the guesswork out of investing in the stock market. We all know diversification wins all battles in terms of investing for returns in stocks, and by simply investing in a total stock market index fund, you’re assured of getting whatever the total stock market returns. Short term, it’s a crap shoot. Long term (meaning 20+ years) it tends to work. Think of a horse race but instead of betting on just one horse you’re able to bet on the race. The safest way to invest profitably is to own the right mix of cash, bonds, stocks, real estate and to not make decisions out of anxiety, fear or the opposite investing too much in one thing because it’s supposed to ‘take off’. I wrote a book as a companion to my show, called The MoneyTrack Method. It’s a straightforward, common sense approach to investing and managing money based on what really works for real people. I hope my answer is somewhat helpful to you.

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