DON’T PANIC – HOLD ONTO YOUR STOCK
Disclaimer: Good Day, Readers. WealthBuildingPowers blog is a financial literacy/competency blog and does not provide specific investment recommendations.
TODAY’S GUEST AUTHOR: MR. ANONYMOUS
Today’s guest blogger is a good friend, Mr. Alias Anonymous, who needs no introduction. I always wonder why people say “needs no introduction”, so thought a perfect time to test that line. I still wonder!
Thank you, Mr. Anonymous, for sharing your long-term investment philosophy.
We are formally in a bear market, defined as a decline of at least 20% in the S&P 500 from its previous peak.
2022 MARKET DECLINES AS OF JUNE 16, 2022:
- S&P 500 ~24% down YTD
- Nasdaq ~27% down YTD
- DOW ~18% down YTD
“DON’T PANIC – HOLD ONTO YOUR STOCK”
“We’re entering a bear market, and recession talk is in the air. The markets are taking losses that look scary in terms of numbers (less so in terms of percentages). People are wondering, “should I sell my stock and avoid future losses?”
First of all, before you do anything, consult a professional financial planner. You’ll pay for it but it is money very well-spent. I am not a financial planner, nor do I play one on TV. This is not professional financial advice, only a relation of what I have learned from financial planners and my experience over about 30 years of retirement savings.
Those who are critically dependent on their stock values and those who are still saving for retirement and have a time horizon of, say, ten or more years away are possibly in very different situations.
This is focused on those still saving for retirement and who have at least 10 years until retirement, the situation that I am in. Further, I contribute to a retirement plan that is almost entirely in stocks (I’m told that’s the only way that I’ll make the money that I need to make for retirement), so stock is bought on my behalf about every two weeks. Finally, all my stocks are in professionally managed mutual funds. I do not manage my own portfolio. Finally, what follows is based on the professional advice that I have received for my situation.
My first point: If you sell now, you’re only going to lock in huge losses. Stocks will rebound (they always do) and grow and, if you stick it out, you will likely more than recover your loss many times over, and in less time than you likely think possible. When the 2008 housing bubble burst and the market took its big hit, I lost about half of my portfolio value. I kept my stock and rode it out. Today, that loss of half my portfolio value in 2008 is a very small bounce in my portfolio’s rapidly-increasing balance over time. In 2008 my balance was about $100,000 and dropped to about $50,000; today it’s a bit over $2 million. I know someone who made the opposite decision; he pulled his money out in 2008 and put it into safe investment vehicles. He never made his money back. He locked in his losses. So that’s the first point – if you have at least 10 years until retirement ride it out. It will pay off.
My second point: If you are saving for retirement regularly through payroll savings (and you should be), you are buying stock at regular intervals, perhaps as often as every two weeks. If you keep buying in this bear market while prices are way down, you’re buying stock on the cheap. You’re not losing money, you’re getting a bargain basement deal. You are buying far more stock per dollar now than you were even a year or so ago. When stock prices go up again – and they certainly will – just watch your balance explode. You’ll have a lot more stock than you otherwise would and will make a lot more money in the long run. So, if you’re still at least 10 years from retirement (my understanding, not a hard rule) and are saving for retirement through regular payroll contributions (which you should be, it’s also tax-deferred income), you’re not facing losses. You’re facing a huge opportunity to come out of the downturn in better shape than when you entered it. A solid, steady investment approach will pay huge dividends in the long run.
My final thought – from what I’ve learned unless you’re very educated in the workings of the stock market and are tremendously disciplined, do not manage your own stock portfolio. Do not day trade and do not chase the expensive thrill of the market rollercoaster. For the vast majority of people, investing in a mutual fund that merely follows a stock index, e.g., the S&P 500, that mutual fund will outperform anything you are likely to do. Investing in professionally-managed mutual funds will earn you far more money. But be careful here, different fund managers will charge different maintenance fees. My personal favorite is Vanguard because I was advised, and did some research on Morningstar, when I started my retirement savings journey 30-ish years ago, Vanguard had the lowest service fees.”
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ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an NC. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, and real estate and am happy to share my finance and investment lessons. I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation. As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss.
Please seek your licensed CPA or fiduciary financial advisors for individual financial advice.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.
