Are You Afraid Of The Stock Market?

Investors have been pampered the last several years. We've gotten conditioned to year after year of positive gains. Then, the stock market had several bad days in February and most of our year to date gains were erased. In just one day (2/5/18) U.S. stocks lost more than 4% of their value!

If you receive your investment statements monthly, you probably noticed your balance declined when you opened it a few days ago. If you're scheduled for quarterly statements, spoiler alert, you're probably not going to be happy.

I'm not sure logic always helps us overcome behavioral driven anxiety, so I probably shouldn't share the following in an attempt to talk you off the ledge.

I could tell you that since baby boomers started investing, let's say August 1978 when I was born, U.S. stocks have averaged an 11.9% return (through January 2018), but I won't.

I could tell you that these market pullbacks are a normal part of investing, but I won't.

I could tell you that U.S. stocks are still up over 2% year to date, but I won't.

I could tell you that the market was due for a pullback, but I won't.

I could tell you that the bonds in your portfolio helped shield you from some of the stock market's decline, but I won't.

I could tell you that there's no reason why we shouldn't expect stocks to be worth more in 10 years than they are today, but I won't.

That's a lot of stuff I decided I wasn't going to say...

Still freaked out? I have a unique response the financial media doesn't usually discuss. It goes like this.

If you're still working and making retirement plan contributions, you actually favor drops like the one last month. It means you bought stocks at a discount compared to what they cost the previous month. Sale!

If you're retired, unless you had planned on cashing out your entire invested balance this month, you're going to be ok. You'll live a while longer and most likely your recoup your losses and then some. And if you don't live much longer, well then who cares what the market did a few weeks ago?

In the grand scheme of things, the recent stock market decline doesn't mean squat. It's the equivalent of stopping for 10 seconds during a marathon to tie your shoe. It doesn't matter.

Is my sass not convincing? What else are you going to do? I challenge you to come up with a better plan than a diversified stock portfolio! Maybe you're thinking you're going to go all in on some business venture? If that one egg in your retirement basket doesn't work, you're screwed. What about investing in real estate? Gimme a break. Maybe, but you're still exposed to that one egg in the basket thing. Besides, it's a common misconception that our homes are fantastic investments. THEY'RE NOT.

So you're down to winning the lottery or receiving an inheritance. Maybe you'll get some dough from deceased family members as some of my clients have. The one thing most of them tell me is they never counted on it.

Historically speaking, there's just no better way to grow wealth without taking on a phenomenal amount of risk other than a globally diversified portfolio of stocks (with a few bonds sprinkled in).

The financial planning recommendation I can give an investor experiencing market anxiety is to model the results of a downturn in your financial plan. At my firm, we leverage a sophisticated planning tool that enables us to test market declines both in severity as well as duration. This helps inform our clients what their portfolio would like look during a recession as well as what they can do about it.

If you're interested in how the recent decline affected your retirement readiness, give us a holler. We'll explain the effect of recent market events on your big picture financial goals as well what corrective actions apply to your situation so you sleep better.

Get educated. Know the likelihood of your outcomes. And last, don't be afraid.