Investing in stocks in a long-term game. You just have to expect volatility, meaning fluctuations in the market. That’s what comes with stock market investing. They do offer the best opportunity for growth, though. That’s why we go there. But expect them to bounce around. Remember that we define a market correction as a 10% decline. We did go through that. Understand that sometimes it happens very quickly, but more often than not, it’s a gradual step down. You only realize you’ve hit that 10% mark when you’re there.
I have a hero in the investment business, John Bogle, and I love his quote that says: “Don’t do something; just stand there.” So, sometimes when you get into these market corrections, this volatility, the best thing you can do is to sit tight. You need to understand the difference between a change in the business cycle, meaning we might be having a recession, there is a decline in growth. We don’t see that here in the U.S., but we are seeing that in China. That will certainly have an effect on us, but it won’t be drastic.
If there is a recession, declining growth, that takes longer to get back. But if it’s just a change in investor perception—and that’s what we really saw last week with all the volatility here in our markets—then often that is short-term. And it can be affected by anything under the sun.
What’s the best way to protect yourself against all this volatility and roller coasting in the market? Well, the first thing is to have a good strategy. That means your asset allocation. What are you invested in in the market (stocks vs. bonds vs. real estate)? Have a well-diversified portfolio—not all your eggs are in one basket. You’re going to have investments that move at different paces. Don’t forget about the last downturn. That’s what happens to a lot of people. The further we get away from a downturn, then we get a little more aggressive, and we don’t like those steady stable things like bonds. We want to be in stocks. Don’t forget about that. And only change your strategy after the dust clears. So, in the midst of all of those declines is not the time for you to go back and say, “I don’t want to be in stocks.” But maybe now that we’ve gone through it, you can say, “I’m not sure I’m cut out for that,” or “I need to adjust somewhat.” That’s the time to sit down and discuss that.