Really. Don't panic. It's not like the stock market is in a true free fall. It's just a little stock market volatility.
Wednesday was just another day. Until the afternoon, when Ben Bernanke announced the Fed's roadmap for tapering the current quantitative easing program.
At that point stocks plunged more than 200 points. Then, yesterday (Thursday) stocks plunged some more — with the Dow ending below 14,000. Today, the stock market volatility has subsided somewhat, but indexes are still down.
Before you get all crazy and start selling stocks, my buddy Jeff Rose at Good Financial Cents has some perspective for you:
Let's not get too upset here. Besides, some think that a little correction might be in order. After all,?everything?has been a little crazy lately. In fact, there are those that think just about all assets are overvalued right now. The economic fundamentals just aren't there to support such a bullish market, some say.
Besides, part of the issue is that companies were loving the cheap money. It helps them borrow at a lower rate of interest, and it can boost profits. (It would be nice if these “job creators” were hiring with their record profits, but that's another story.) Now it appears that the cheap money train is about to pull into the station, and investors are concerned.
Hence the stock market pummeling.
Stock Market Volatility? Don't Panic!
Rather than panic, though, it's time to clutch your towel and take a few deep breaths. As always, selling low is not the best investment strategy out there. Now might be a good time to do a little bargain shopping.
Has the market reached a low? Who knows? But if you have a few stocks or funds on your list, and you've just been waiting for them to drop a little in price to reach your desired valuation, it could be a good time to do a little buying.
It's hard to remain calm when you watch a stock market drop like that. However, it's best if you do remain calm. After all, as Jeff's illustration above shows, we're not anywhere the lowest levels of the last few years.
One of the ways to stay calm is to create a properly diversified portfolio, and create an investment plan that you can stick to through thick and thin. Since I'm a boring investor, the bulk of my portfolio (held in a Roth IRA) is created with the help of ETFs. I also have some dividend aristocrats and a few notes with Lending Club.
But really, for me, it's all about the index ETFs.
Keep Calm and Keep Investing
I recently moved my Roth IRA to Betterment, and I've been happy there. The fees are much, much lower, and they're the ones that have my Roth IRA in index ETFs. (My emergency fund, in a taxable account, is invested in an S&P 500 index fund.)
Rather than sell everything now and freak out, I'm staying the course, and investing with Betterment really helps me stay that course, because the investing happens automatically. I've got more than 30 years before I plan to touch that money, and over time it's likely to grow through the magic of compound interest. No matter what stock market volatility is doing in the short-term, over the long run things tend to smooth out a bit.
A strategy that includes low-cost funds can be a great way to prepare yourself for the long haul, and it can also be a way to keep you from freaking out too much when the markets hop on the roller coaster.
Even if you want to diversify into something like gold or real estate, or anything else, a core of solid funds can help you stay on track — even when everything seems to be falling apart (because anything, even gold, can fall apart).
Decisions made in a state of fear rarely turn out well. Decisions made in a state of panic are almost destined to destroy you. Fight down the fear. And keep investing.
What do you think? Is it time to panic? Or go on a shopping spree? Or wait until the markets fall further to buy even more?