Was I ever excited yesterday that there was a huge clearance sale on investments! And that sure came true. For the three days ending Monday, the markets dropped around 10%. But don’t panic:
Take a deep breath, don’t make panic decisions, and realize that a correction happens every 18 months or so. Since the last one was five years ago, this has been coming for over three years!
I manage a seven figure investment portfolio for a relative, so I have a LOT of skin in the game. They are managed accounts where I don’t get involved at all with Hollis Wealth South Edmonton. Before the correction, the accounts were up 11% on average. They are conservative and do not have any individual stocks – because that is gambling. They dropped $54,000 in three days. But that only reduced then to their April 2015 levels. Yesterday, the market was way up and the accounts made back a ton of the previous drop.
The markets go down and they go up. Over a quarter, a year, or ten years, they’ll be up – just not as of Monday. Investing is a time horizon of five years or longer. So what on earth does it matter what one day or one month brings?
We tend to think what happened last week will go on forever. There are still people who have never invested again after the 2008 actual meltdown. The markets have quadrupled since then, and they’re in GICs. Conversely, when things go well, we tend to think that the good times will last forever, and that’s not true, either. There’s a great quote that more money is lost preparing for a correction than in an actual correction.
If you are saving for a down payment, a car, or whatever, your money should not and cannot be in the market. It needs to be in a boring no-return/no temporary loss savings account.
If you’re retired, or close to retirement, you do, or should, have a conservative portfolio. The markets dropped 10% but, in my case, the accounts didn’t go down by more than 4%. On the other hand, if you’re in your 20s, you should have good growth mutual funds and one week doesn’t matter because you won’t need the money for 40 more years!
The best way to invest is a little each month. Whether it’s $100 or $500. Make the contribution monthly no matter what the market is. On down months, you’ll get a lot more shares – on months when the market is up, you’ll get fewer shares. Go to yourmoneybook.com and search for dollar cost averaging with some incredible stats going back to the Great Depression of how that’s THE best way to invest.
Lastly, you need to be mindful that Canada is a resource rich country. But we’re also a tiny percent of the world economy. My investment accounts have almost no Canadian stuff in them – haven’t for 18 months – way before oil and the dollar plummeted. Canadian investments won’t come back for two years – if then…
Again: Take a deep breath and realize it’s temporary. If you think the free enterprise system is doomed and companies in the index that you hear about like Walmart, GE, Telus, etc. are all going to go under – then you can sell and get out. If not, just don’t open your statements for a couple of months and ignore the doom and gloom…