A good friend of mine, someone who has achieved great success – financial and otherwise – whose opinion I value and whom I have the good fortune to regularly engage in all manner of conversation, sent me a text message earlier today. In fact, here it is:
Good time to remind your blog readers how important it is to focus long-term and not short-term on the market and that our economy although not robust, is pretty solid … look for buyers to come in soon.
Indeed. Last August, the 25th to be exact, as the market was in the middle of its last significant pullback, a high school friend posed this question to me via a Facebook message:
The stock market, the last 36 hours. Thoughts?
My first, visceral, thought is that I hate losing money! However, as someone who has a well-established retirement plan which includes well-diversified retirement accounts (e.g. 401(k), IRA), for me and my wife – and considering that we are about 10 years away from retirement – my rational thought, and plan, is to stay the course. There is always the possibility that the market could drop another 10, 15 or 20% in the near future and someone could say, “you should have gotten out. Look how much more money you lost.”
However, it is also possible that the market could stabilize and gain 10, 15, or 20% over the next month. If you exit the market, you also run the risk of missing huge gains. The reality is that no one knows what is going to happen in the near-term. That is why it is important to develop a long-term plan, understanding that there will be painful periods along the way. The graph [the one above] shows the U.S. Market – as measured by the S&P large Cap Index – between 1960 – 2014. Savvy long-term investors see the dips, some quite significant, but focus on the big picture, the long-term trend.
If you need a reminder, plan and act with your long-term objectives in mind and when others are panicking, stay the course!