Perspective with the wild ride

The stock market took a ride this week worthy of Cedar Point’s “Steel Vengeance,” its newest roller coaster opening this year.

For the week, the Dow Jones Industrial Average closed down 5.2 percent, marking its largest weekly decline since January 2016, reported Market Watch, a financial information website that is a subsidiary of Dow Jones & Co.

Twice during the week, the stock market dropped more than 1,000 points in a single day.

According to the Washington Post, investors lost $3 trillion – with a “T” – in stock market value in one week.

A little bit of that lost value belongs to me.

It’s happened before

I’m one of the fortunate people who has a 401(k) from 24 years working at one company. It’s still 100 percent vested in stock mutual funds, a very aggressive plan, especially for someone my age (57). My wife and I have other, more conservative, investments as well, so I’m OK with a risk-taking 401(k).

In 2017, the Dow Jones Industrial Average rose 25 percent for the year, its best showing since 2013, said cnn.com.

Neither this week’s big decline nor last year’s big gains were unique. Both scenarios have happened before, and relatively recently, too.

Investors, who set a monthly record for sinking money into the stock market in January, pulled their money out at a record pace in the week ended Feb. 7, reported EPFR, a Cambridge, Mass., data firm.

Yikes. Too many investors bought high and sold low.

Take a deep breath, everyone. We’ve been here before, and survived.

Investing for the long term

I opened my 401(k) in the mid-1980s when I was in my mid-20s, and contributed to it for more than two decades. A small company match certainly helped. So did a wonderful stock run-up throughout the 1990s. Easy money, I thought.

I can live only in the moment, but if I live only for the moment I will miss so much.

Then the stock market crashed in September 2008, losing more than half its value by March 2009. My 401(k) lost about 40 percent of its value.

It took several years, but my 401(k) did recover, and his since grown much higher.

It’s a retirement account. I’m in it for the long term. In 2008, I knew I wasn’t going to start cashing it in for another 15 years or so, at least. So, the losses were only on paper.

That $3 trillion in value lost this week is on paper also. If you’re living off of that money, you probably should be preserving capital in more conservative investments. The stock market is for long-term growth, in general. (Some stocks are more volatile than others, of course, which is why every financial adviser will say we should diversify our portfolios.)

I haven’t checked my 401(k) balance recently. Neither has my wife (she’s more on top of it than I am). I’m sure it lost value this week.

But I’m not ready to start cashing it in yet. So I’ll just ride the wave.

Risk tolerance

Part of this equation is risk tolerance. Did I lose sleep this week when the stock market got volatile? No. I have a fairly high risk tolerance.

If you’re an investor and you did lose sleep – or you pulled a lot of money out of the market this week – then you probably are investing too aggressively. There’s nothing wrong with being a conservative investor. You won’t make the big gains in a boom market, but you won’t lose big during a correction or recession, either.

Each of us needs to determine our own risk tolerance. And also determine what the money we’re investing is for. Retirement? A nice vacation? Christmas gifts? Something else? It’s all good.

With the stock market, we need to take the long-term view.

Bigger rewards later

That goes against today’s instant gratification mindset.

We’d rather spend the money we make, all of it, rather than save some for a rainy day. We buy the latest technology – does every child, much less adult, need the latest smartphone every time a new one comes out? And I know people who buy lunch at a fast-food restaurant every day. A brown bag lunch is much more nutritious and costs a lot less. Eating out every so often is great – we do need to treat ourselves – but every day is an extravagance many of us can’t really afford.

Of course, if everyone acted like this, the economy would slow down because we wouldn’t be spending so much money. But we’d have more savings to spend on more meaningful, and possibly bigger, things. Saving money for a nice vacation or a new vehicle takes time and effort, but the rewards are so worth it.

Not going into debt for those things is one of the biggest benefits.

The future will come

Life in general is a lot like the stock market. It has its ups and downs, successes and failures. I’ve had great jobs and been fired. I’ve had emotional highs and lows (although I don’t often show them publicly). I’ve had great health, but I know I won’t live forever.

How do we handle the “life is not fair” moments, as well as the good times?

My retirement is much closer now than it was 30 years ago when I began investing. Starting to plan for my retirement when I was in my 20s will have a huge payoff very soon.

A big-picture outlook on life is so worth it. I can live only in the moment, but if I live only for the moment I will miss so much.

Take a deep breath. Plan ahead. Think long-term.

On average, Americans can expect to live 78.6 years, according to 2016 data published by the National Center for Health Statistics. Women can expect to live five years longer than men: 81.1 years vs. 76.1 years.

People who die young make the news, but chances are good that you and I both will reach retirement age. We should plan for it.

If we do that well, the roller-coaster ride of the stock market won’t cause us to lose sleep.

Not too much, anyway.

 

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