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THIS IS A TEST. This is only a test. This is a test of our stock market resolve. Remember how you told yourself you’d stand pat during the next stock market decline, that you wouldn’t get rattled like you did in 2008-09 and early 2020? That moment has arrived.
Like any person with an ounce of decency, I’m appalled by Russia’s invasion of Ukraine and the unnecessary death and suffering that will result. But I’m also confident that the Russians will come to regret their actions. Can you think of a recent invasion that turned out well for the invader?
But while I worry about the Ukrainian people, I’m not much concerned about the stock market’s decline. It’s not because I have a crystal ball. Unlike the talking heads on the financial cable TV shows, I have no idea what will happen next in the financial markets. But I’m certainly not selling my stock funds. In fact, if the decline continues, I’ll be investing more and, if the drop is steep enough, a whole lot more. Feeling nervous? Keep these four points in mind.
Today, stock market investors are being tested. The late Jack Bogle, founder of Vanguard Group, would constantly exhort investors to “stay the course.” Sounds like great advice to me.
To me ‘stay the course’ means to stick to your original asset allocation (i.e. don’t make changes based on short-term market fluctuations). It seems dangerous to suggest that investors should simply buy more whenever stocks decline as if they knew what the proper valuation of the market should be. Is the market too low now or was it too high before the decline. Of course, it is good idea to rebalance your portfolio at regularly scheduled intervals; however, to track short-term movements and make changes to your asset allocation sounds like market timing to me.
A great tactic to deal with the first 3 of JC’s points is to set up dividend reinvestment.
It is easier to buy and hold than figure out when to sell, and then when to buy.
Buy the dips!