The Market is Down..That Doesn’t Matter – Stay the Course

- - Retirement Plans

Before I start, I want to remind you that I am in no way, shape, or form a certified financial planner, money manager, stock broker, or anything similar. However, I want you to hear this side of the story based on what is happening in the U.S. currently.

market is down, but stay the course anyway

I wanted to stop in and gently remind you NOT to sell your stocks, mutual fund shares, etc. even if the market drops another 10%, or even 50%.

During the 2008 recession, I watched people close to me cash in their entire retirement account because it had already lost a lot of money in the market – and they didn’t want to lose anymore.

At the time, I didn’t know any better to tell them otherwise. Now, I kick myself every day for not having the sense to even do a quick Google search and find out what the right move was.

I’m attempting to “right” that wrong, by sharing the story with you in hopes that I can help at least one person change their course of action and do some more research before cashing out their retirement fund early. 

Once you drain your retirement account before a certain age, you lose at least a third of the value to taxes, fees, and government nonsense; and you can’t exactly just put the money back in there. Combine that with the money you’ve already lost, and all of those opportunities for growth once the market rebounded are gone – you’d be in a tough spot. 

Game over. It’s time to start fresh.

But If the Market Crashes, I’ll Lose a Ton of Money…Right?!

In the short term, yes, you technically will. Yet in the long-term, you will probably gain some.

While we typically think of assets as simply a dollar value, it may be beneficial to view them as an “item.”

I’m going to get a little detailed her just so you understand what in the world I’m talking about.

Let’s say one share of XYZ stock might be worth $100 now, but in two weeks it could be worth $50. As I mentioned before, it might seem like you just lost half of your money. But there is one thing you need to remember:

You still own that one share.

If the market improves and that stock jumps even higher to $125, your “asset” is now worth more than it was previously.

Yes, you temporarily lost money, but in this example, it skyrocketed back up. Keep in mind that it could also go lower.

Thinking of these shares as “items,” as opposed to blindly looking at the current cash value might help you make a different decision. This might deter you from getting nervous when the dollar value drops and you’re tempted to sell it so you “don’t lose more money.”

Let me put this another way: Let’s say you bought a share of Facebook for $100. Two months later, Mark Zuckerberg broke his hands and couldn’t effectively run the company (please mind my super random, far-fetched example), and the share price dropped to $50. You get scared, and because you already lost so much, you don’t want to lose even more— so you sell the share. You just lost $50.

If the market rebounds, you won’t see that money—it was a complete loss on your end. If you had held out until the market rebounded, you’d have seen that money again and your share would be worth more than it was previously.

That $50 may seem like a small amount, but most people don’t own just one share. Multiply that by 100 or 1,000 and you’re talking a lot more money at stake. More risk, but the ability for more reward as well.

I like to continually put money into the market at a regular pace. If I ever changed my position on this, it would be to put MORE money into it when the market takes a downturn.

Why?

If that $100 share is now selling for $50, I can buy it for much cheaper price than it was valued at previously. If it then jumps back to $125, I can more than double my money. Of course, the share could tank too.

Keep in mind that the markets don’t move that quickly, and a downturn could last quite a while.

Since I buy mutual funds and they are made up of hundreds of stocks from different companies- if one company goes under, it won’t affect the value of the mutual fund that much.

If the market tanks and the entire stock market ends up valued at $0, I’m pretty sure our entire society would crumble.

Money won’t matter anymore anyways if that does happen, so I like to think of this as a lower risk strategy.

My Current Situation

My 401k had $33,758 in it last week. Now it’s $4,000 lower than that. Am I freaked out?

Nope.

I’m in this for the long run—there will probably be four or five much larger downturns in the market before I retire and need to take money from this fund. In the grand scheme of things, I believe it’s better to leave your money where it is and stop watching the news. The future of your retirement fund looks bright, as long as you have a few years before you retire. 🙂

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Chenell

I am Chenell Tull and so far, I've had a pretty rough time with my student loan debt. Recently, I've figured out a more productive "get out of debt" plan and the goal is to pay off over $60k in just 36 months. If you want to learn more, subscribe to the mailing list and get FREE updates on my successes and failures on this journey out of debt. 

  • This is a timely post to review the volatility we experienced in the market the last two weeks. A couple things to consider:

    1) If you have stocks in your retirement account and feel the sky is falling, you can sell your shares. As long as you keep those funds in your account then there is no tax obligation or penalty. You could place it in bonds or cash equivalent areas of your plan.

    2) The scary part about the math is how difficult it is to recover in the short term. If stock XYZ drops to $50 from $100 that is a 50% drop in price. To go back to $100 from $50 is a 100% increase – that is difficult to do very quickly. To go to $125 is a 150% increase from $50.

    When the market falls like it has this month, fear starts to rise and we soon forget the notion that the stock market always goes up. It doesn’t! We have to be in it for the long haul or choose another more appropriate short-term investment.

    • What’s even scarier is how long it would take that $50 to get back up to $100 if you withdrew it and put it into a bank account 😉

  • Pingback: August 2015 Debt Report | Bright Cents()

  • Yes! It’s all about thinking long term!

    • Deferred gratification > instant gratification in this case.

  • Glad you wrote this! I feel the same way! I kept all my positions and kept right on investing!

    • Yes, I’m glad to hear you’re doing the same. @DaveNSteveGoodwin:disqus, are you headed to FinCon this year?