What to Do When the Market Takes a Dive

Margaret Wittkopp
Investment Advisor Representative
Veritas Financial Services

This is the headline you might have seen on Monday morning: “Investors Panic as Wall Street Plummets Amid Global Fears.” Whew! Sounds terrible, doesn’t it? None of us like to see those negative numbers. Is it time to panic? To get out of the market altogether? To buy nothing but fixed income--or--?

Here is my advice: AVOID WALL STREET MEDIA HYPE!

It will get better—and no, I’m not being a “Pollyanna.” We know that our economy is in a slump, and we know there may be hard times ahead for many, but here’s something else we know, a bit of investing wisdom almost everyone has heard but few follow, “Buy low. Sell high.” When the market drops and people panic and start selling, someone else (the next "Warren Buffet," perhaps?) is buying. Why?

Here is a simple example from everyday life. Let’s pretend you are going shopping for a new dress. And let’s say that last week you saw “the dress” in a window with a $100 price tag, but this week it’s on sale for only $50. Would you see a great opportunity to buy the same dress for less money, or would you wait till the price went back up? You know the answer, of course. You’d buy the sale item and go home happy at your bargain.

When the market is down, your investing dollar buys more. When the market rebounds, as it historically has always done, you have more than you did to start with. For example, let’s say that you have a Simple IRA that invests $100 a month for your future. We’ll keep it simple and say that last month your stock purchasing dollars bought ten shares at $10 a share. And then the S&P 500 index drops 10% (as it did on Thursday). Time to panic? No. Now your same $100 buys more than eleven shares. What a bargain! It’s like getting a share of stock for free because eventually, over time, the market rebounds.

Here are some other things we know about the stock market:
• Without the volatility (risk) that goes hand-in-hand with stock ownership, the returns associated with stocks would diminish, and so would the attendant wealth

• We have never endured a recession that hasn't ended.

• The highest historical returns have followed a crash. In fact, the single largest recovery followed the single largest crash.

While I am saying that it is not a time for panic, I am not saying that you should do nothing. Here are some things to consider:

• Are you appropriately diversified across a wide range of asset classes, or do you have lots of overlap and similar “stuff” in your portfolio? (Hint: You can’t just go by the name of your mutual funds. You must take a look at the holdings inside.)

• Are you taking a long-range and disciplined approach to investing, or are you trying to find the next hot stock or fund?

• Do you have a financial coach? Investors are emotional about finances (aren’t we all?) and usually need someone to help them stay on track.

To learn more about investing, join us for our next Investor Education class or call Jeremy or me at 920-893-5262.