If you are a “first timer” experiencing a major market correction for the very first time or even someone who lived through the market crisis of 2008 but was less effected then, the horror of opening a statement and seeing a seriously lower number than last month can be unnerving, unsettling, even panic inducing. How can we make sense of a bear market? What are the best ways to cope with what feels like a drumbeat of bad news?
As one who has lived through 1987, 2000 through 2002, 2008 and several smaller dips in between, there are a few lessons I’ve learned along the way:
Money is not lost just because your account value has declined over the past few months. If you sell shares at a low point, THEN you will have a loss. Don’t confuse current valuation with actual money.
Dividends and capital gains that are paid out during a market decline will purchase more shares for you at that lower price. This December’s dividends did just that. When the markets turn positive, and they will, you now have more shares to benefit from the market upturn.
We all love to buy real estate, cars, clothes at a discount. Why do many investors want to stop buying into their investment positions when markets are declining? We have the opportunity to buy a piece of future wealth “on sale.” Investors who are still working should view systematic investments in 401(k)s and other investment accounts as an opportunity which only comes around every so often.
All bear markets end. And they usually end abruptly with a large upswing in the following few months. After the cataclysmic declines in 2008, the S&P 500 began the bull market we have enjoyed for the past ten years in March of 2009. From that point the S&P 500 went on to post over a 26% gain in 2009.
Money and money management are emotional issues. Investors both young and old tend to think that investment management is all about facts and numbers. It is not. Facts, numbers, opinions, mixed in with fear and the occasional elation – all are filtered by one’s emotion. The job of the Financial Impact Advisor is to work with you to manage those emotions and to help both novice and experienced investors to keep their eyes on their goals and not the current portfolio statement.
The S&P 500 Index is a capitalization-weighted index made up of 500 widely held large-cap U.S. stocks in the Industrials, Transportation, Utilities, and Financial sectors.
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.