The last couple of days have been absolutely wild in the stock market. The S&P 500 has given back all of its gains for the year and then some. So, is it time to sell everything and go sit on the sidelines for awhile? Of course not.
Here’s some of my thoughts on stock market dips and how to handle them:
- Hopefully, your investment plan takes into account that the money you have invested in the stock market is money that you aren’t planning on using for at least a few years. If it doesn’t, then you need to get a new plan.
- To say this drop is overdue is an understatement. It’s been so long since we have had a 5-10% correction that people forget that stocks don’t go up in a straight line. Also, the longer they rise without a pause, the more violent the fall. Hence, what is happening now.
- It is always better to sell when you want to and not when you have to. Over the past few years, it would have been hard not to make money in the stock market. There’s nothing wrong with selling a small percentage of your investments to lock in gains and raise cash for times when the markets go down, like now.
- Stocks always take the stairs up and the elevator down. When stock prices go up, they tend to do this in a slow, methodical way with pauses in between, like walking up stairs. However, when stocks drop, they tend to do it quickly. This is why bull markets tend to last a lot longer than bear markets.
- Most of the media and the experts focus on the short term, because that’s what sells. This type of information applies to traders, not investors. If you are a trader, meaning you buy and sell stocks only for a short period of time, then yes, you are getting crushed. If you are an investor, then market drops like these provide opportunities to buy in at a better price.
- Most people remember the huge drop in 2008/2009 but do you remember the big dips in the S&P 500 in 2014, 2015, and 2016? They were pretty bad but we recovered quickly and continued higher. I suspect people will forget about this dip in the near future as well.
Please feel free to contact me with any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
