Your Investments Will Lose 48% – Time to Panic (Part 2)

 In Asset Allocation, Expectations, Financial Planning, Forecasts, Future, Goals, Happiness, Investments, Retirees, Retirement, Risk

HOW WOULD YOU RESPOND IF YOUR INVESTMENTS LOST 48%?  WOULD YOU PANIC? In part 1 we discussed how you might be impacted if the markets experienced a large sell-off.  In addition to seeing the losses in your statement and the anxiety that comes with that, you will also be inundated with the inevitable “end of the world as we know it news” about the markets and economy, etc.  So what will you do?  What should you do?

WHAT YOU MIGHT DO?  One possibility is that you could change your investments.  That is always an option.  If the losses and bad news get to be too much, you could bail and go to a safe fixed type investment.  Something like a money market account or savings account, a CD, or a stable value fund.   Of course you would be selling in the midst of a loss.  Is that really a wise move?  

HOW WILL YOU MAKE THAT DECISION?  When will you decide that you cannot take any more losses?  What will be the trigger point?  Is it a loss of 10%, 20%, maybe 28%, or 40%?  Will you stay out for a while?  Maybe 6 months, 1 year, 2 years.  How about if you decide to stay out “until things get better.”  (This is the worst approach you could take).  Who will influence you?   

WHAT YOU SHOULD DO.  If you are well diversified, accept the volatility in our portfolio, understand how markets behave, and have a long term plan, then DOING NOTHING will be the best plan.  Just ignore (sound investment advice from J Money at budgetsaresexy.com) what happens.  This your strategy!  If you are in the markets today, plan on staying them, even during the tough times.  It is simply too difficult, and costly, to try and find the right time to get out and get back in.  If you figure out how to do that, quit your job and begin trading on the moves of the market.

RIGHT NOW! HERE IS WHAT MATTERS TODAY:  If you realize that you are going to end up bailing out when the markets sell-off, do yourself a huge favor and get out now, before it happens.  This is not a stupid or a bad decision.  On the contrary, it is brilliant.  Being self-aware and smart enough to make this change now is better than bailing after you have lost a lot of money.  

HOW MIGHT YOU RESPOND?

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