Learning to Love Stock Market Drops

That’s right, it’s February and my theme of the month is love.  “Why so obvious and cliché?” you ask.  Well, you try writing 52 blogs a year.  You’ll find yourself grasping for any holiday theme, too.

 

What investors and financial advisers don’t typically love is when the stock market goes down. No one likes seeing their balances drop.  Financial advisers don’t like for their clients to be unhappy.  So, what’s to love about stock markets going down?  Here are three things:

 

  1. It’s all on sale, baby!  When is the last time you ran to Nordstrom for a 50% higher price sale?  Never, right?  Ninety nine percent of the time, we like to buy stuff when it costs less than normal.  The other 1% is when stocks are cheap. When the stock market goes down, that is our cue to buy, but most people want to sell and keep their money in a Folger’s can.  Remember Warren Buffet’s fabulous quote: “Be fearful when others are greedy and be greedy when others are fearful.”  In other words, when the stock market is down, if you have extra cash, buy some stocks!

 

  1. It’s not unusual and it won’t last long.  First, a little vocabulary lesson.  A bear market is when stocks decline 20% off their previous highs.  A correction is when stocks are 10% lower than their previous highs.  Corrections typically happen once per year and bear markets once every 3.5 years.  The average correction recovers its value after 10 months and a bear market on average bounces back after 15 months.

 

  1. Celebrate your diversified portfolio.  You weren’t 100% in the stock market anyway, were you?  Your bonds are helping offset your (temporary) stock market losses.  Your financial adviser had you positioned with anywhere from 15% to 40% bonds, depending on your risk tolerance and time horizon, right?  Oh, you don’t have a financial adviser helping you with those decisions?  Time to contact Kristi for a 15 minute phone consultation!

 

If these topics sound like they would be of interest to your employees, sales conference, or professional organization, contact me at 303-324-0014 or kristi@sullivanfinancialplanning.com for more information.

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